While Shell (NYSE: SHEL), an integrated hydrocarbon energy company, may appear as an anachronism in the current era, the present juncture presents a favorable outlook for its stock. Amidst geopolitical flashpoints, the risk of oil supply chain disruptions could boost SHEL’s performance. Moreover, the company’s shift towards sustainable energy solutions further enhances its prospects.
The bullish case for Shell stock was evident in its positive response last Friday. SHEL closed up nearly 1.5%, outperforming integrated oil giants Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM), which gained approximately 1.54% and 1.2%, respectively. This upward momentum occurred despite broader equity indices facing challenges. While the benchmark S&P 500 fell below the 5,000 level, sparking concerns about a potential market crash, the hydrocarbon industry stands to benefit from these uncertainties.
Geopolitical developments are expected to drive demand for Shell’s products. Tensions in the Middle East, including Iran’s missile attacks against Israel and Israel’s retaliatory strike, suggest volatile conditions that could lead to supply interruptions. Russia’s ongoing invasion of Ukraine and Ukrainian attacks on Russian oil facilities have also disrupted fuel availability and may lead to higher prices.
In response to global energy supply disruptions, western nations have prioritized reducing their dependence on Russian hydrocarbons, emphasizing renewable energy sources. Shell’s plans to construct Europe’s largest renewable hydrogen plant align with this trend, positioning the company for a transition to clean energy. Additionally, its recent announcement to close 1,000 gasoline stations and focus on electric vehicle charging solutions taps into the growing demand for EV infrastructure.
Beyond geopolitical tailwinds, Shell’s stock presents an attractive valuation. Its shares trade at only 0.76X trailing-year revenue, significantly lower than the sector median of 1.18X. Analysts project a 9% revenue increase for the company in the current fiscal year, further enhancing its value proposition. If supply disruptions escalate, the potential revenue boost could drive SHEL’s valuation even higher.
In conclusion, Shell stock offers a compelling investment amidst geopolitical uncertainties and a shift towards green energy. Its potential to benefit from oil price spikes and its strategic positioning in renewable energy make it a viable option for investors seeking both stability and growth potential. Despite the ethical concerns associated with supporting fossil fuel companies, Shell’s undervalued status and its pivot to sustainable solutions make it an intriguing opportunity in the current market.
