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So far, 2023 has been a disappointing year for the FTSE 100. Since December 30, 2022, the Footsie is up just 0.5%, excluding cash dividends. Meanwhile, some of the individual stocks in the index have easily outperformed this performance, including Shell (LSE:SHEL) share price.
Bouncing
At its 52-week low on March 24, Shell shares briefly fell to 2,149.45 pence. However, as stock markets recovered, the share price rose again.
On Friday (November 24), Shell shares closed at 2,595p, valuing this oil and gas major at a whopping £169.6bn. This makes the group the largest member of the FTSE 100.
That said, the shares have pulled back since hitting a 52-week high of 2,801p on October 18. They are now 7.4% below this high mark. However, Shell shares have risen 10.4% over the past six months, easily outpacing Footsie’s loss of 1.8% over the same period.
Here’s how Shell’s share price has performed on five time scales:
| One month | -3.4% |
| Six months | +10.4% |
| 2023 to date | +11.7% |
| One year | +9.7% |
| Five years | +9.6% |
The shares have produced positive capital gains over periods ranging from six months to five years, something the FTSE 100 as a whole has failed to achieve.
Additionally, it’s important to note that the figures above exclude dividends, the regular cash payments that some companies make to shareholders. As one of the UK’s largest corporations, this Anglo-Dutch giant pays out billions of pounds in surplus cash each year to its owners.
stocks could rise again
When I look at these mega-cap stocks today, I see value at current levels. At a share price of 2,595p, this stock trades at a multiple of 7.7 times earnings, translating into an earnings yield of 13%. This is much cheaper than the corresponding FTSE 100 figures of 10.9 and 9.1% respectively.
On the other hand, Shell’s 3.9% annual dividend yield is a step away from Footsie’s 4% annual cash yield. But this payout is covered 3.3 times by earnings, a large margin of safety. Additionally, the company is increasing its quarterly dividends, pledging to increase them by more than 4% annually.
In addition, the group uses its enormous cash flows to buy back millions of its own shares. For example, in the latest share buyback announced on November 2, the energy giant committed to buying back $3.5bn (£2.8bn) of its shares over the next three months. Wow.
To me, these seem like classic characteristics of an undervalued stock. However, Shell’s future revenue, earnings and cash flows largely depend on oil prices. And the cost of a barrel of Brent crude oil has fallen around 10.8% in the last month. This explains the share price drop from its October 18 high and remains a risk for the stock.
Finally, although I see Shell’s share price is above current levels, I will not be buying the stock at this time. First, because I don’t have enough cash to invest to add a reasonable stake to my family portfolio. Secondly, because we already own an oil share and my wife doesn’t want to have any more.
