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From the height of the pandemic, Shell (LSE:SHEL) shares have delivered some extraordinary returns for shareholders. The big question for many investors has been, How long can this growth continue??
So let’s take a closer look at Shell stock and explore what’s next for the oil and gas giant.
more growth
Despite recent share price volatility brought on by fluctuations in the oil price, shares of Shell are up 12% in 12 months. So if you had invested £1,000 in the company a year ago, you would have £1,120 today. That’s not bad at all.
Also, you would have received dividends during that time. The dividend yield currently stands at 3.5%, but a year ago it was closer to 4%. My £1,000 would have generated around £40 in returns.
So my total return on investment would have been around 16%; That’s about double what average investors can expect from the FTSE 100.
Performance remains strong
In a Thursday update ahead of May first-quarter results, Shell said it expects to report higher liquefied natural gas (LNG) production (7-7.4 million tonnes) quarter-over-quarter. That’s after disruptions at its Australian plants last year, as well as steady profits from LNG trading.
There were positive suggestions elsewhere. The company said its oil products division would see earnings boosted through a “significantly higher” commercial performance. Renewables are expected to contribute $100 million-$700 million in adjusted earnings, up from $300 million in the final quarter of 2022. That’s a wide range, and leaves much that is still uncertain. But at the high end of the range, it could be very positive.
Invest in a volatile market
Shell can be a volatile stock to invest in. Often this has very little to do with operating performance, but with economic data, geopolitics, OPEC+ feedback, and as a result of the above, oil price changes.
This volatility, and the often cyclical nature of the energy market, is why oil companies do not trade at particularly high valuations. Shell is trading for around 7.5 times earnings. That’s just above half of the index average.
But, as noted, there may be a good reason for this. Shell’s performance is greatly affected by the prices it can achieve for the oil, gas, power and petroleum products it produces. When oil and natural gas prices go up or down, we see almost immediate changes in stock prices.
After the recent OPEC+ cut, some analysts started talking about oil going above $100 a barrel in the near future. But several big banks have actually cut their price forecasts on slower economic growth around the world, and even a US recession.
Personally, my preference is to try to avoid more volatility than I need to. I am quite bullish on the long-term outlook for hydrocarbons, but I would not buy hydrocarbon stocks now that oil looks particularly volatile right now.
All it would take is some negative US economic data to push energy prices down. As such, I think there could be better entry points later in the year if I stand by my thesis on the long-term resilience of hydrocarbons.
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