This article is an excerpt from Barron’s 10 preferred stocks for 2022. Click here to see the full list.
Energy supplies can be tight and prices can run high for years. Royal Dutch Shell (ticker: RDS.B) stands to capitalize as one of the world’s top energy operations. It trades at a significant discount to its US counterparts, Exxon Mobil (XOM) and Chevron (CVX).
Shell’s US-listed shares trade around $43, compared to a price/earnings ratio of 11 for Exxon and 12 for Chevron, only seven times projected 2022 earnings. Shell’s yield is 3.9%, which is less than Exxon or Chevron. However, Shell has a conservative payout ratio of around 30% after the sharp dividend cut in 2020.
Shell is “one of the cheapest large-cap stocks in the world,” wrote Dan Loeb, an active investor in Third Point, which took the stake.
Its best business may be the world’s largest liquefied natural-gas operation, requiring only modest annual capital expenditures.
Loeb’s push to crack down on Shell seems like a long shot, but it’s possible that the company will take a portion of the world’s largest network of service stations public.
Bernstein analyst Oswald Klimt praised the energy giant’s recent move to simplify its corporate structure by residing in the United Kingdom and breaking its two share classes into one. Clint sees an uptick in the company’s stock buybacks in 2022 and has a price target of $63 on American Depository Receipts.
Shell’s exemption to its US rivals reflects intense pressure to scale down its oil and gas operations in Europe. It remains a risk, but Shell remains committed to its core business.
Write to Andrew Berry at [email protected]