SHOT VIEW: Is Royal Dutch Shell a BUY?

December 3, 2020

Royal Dutch Shell stock at very low


As a result of the spread of Covid-19 at the beginning of the year, the markets suffered strong downward pressure. Some markets have largely recovered from the slump. On the other hand others have fallen further behind, suffering more from the consequences of what is happening. From a medium-term perspective, we prefer sectors and stocks which have excellent potential not yet expressed in their prices.

For instance, the Oil & Gas sector is one of them. Among the major energy players we believe that Royal Dutch Shell could be an interesting stock. In fact, there are many reasons to believe that it can be a good investment despite the downward pressure of recent months.

  • The oil prices. The lockdown of global economies led to the largest collapse in oil history. As a result, this caused a drop in oil company spending and investment, and a collapse of production potential. In our view, this will lead to an oil price recovery when economies return to full capacity. In the coming years, oil and gas will still be the main source of energy. Renewable sources will need time to replace them.
  • On a global and European level, many funds will be invested to accelerate the production of energy from sustainable sources. We believe that the transition process will mainly take place through those who are already major energy players. In fact, the major producers, including Shell, have declared important investment plans in the new energies field. Shell said that it is aiming to become a net-zero emissions energy business by 2050 or sooner.
  • After an in-depth analysis at a fundamental level, we believe that Shell has a solid and relatively stable balance sheet over time. This proves that the company is able to adapt to market changes. In addition, even from a technical point of view the stock is at low price levels.

Over the years, world energy consumption has steadily increased. This trend will continue according to the International Energy Outlook 2020 published by the U.S. Energy Information Administration. We live in a world that has and will increasingly need energy. For the sector in which it operates, for the solidity of the company and its future potential, in our opinion Shell is currently undervalued, and therefore a BUY in the medium term.