Royal Dutch Shell: Going Through Reality Checks by Fun Trading
Summary
- Royal Dutch Shell announced a change in guidance for the 4Q'19 and non-cash impairments charges of about ~2 billion.
- The fourth quarter of 2019 is another challenging quarter for Shell with the upstream production estimated at $2,800K Boep/d (midpoint) compared to 2,606K Boep/d in 3Q'19.
- It may be time to take some profit off the table and raise cash for a possible accumulation on any weakness below $58.
Source: Royal Dutch Shell
Investment Thesis
The Hague, Netherlands-based Royal Dutch Shell (RDS.A) (RDS.B) is incorporated in the United Kingdom. Shell is one of the largest oil and gas integrated (Upstream, downstream, Integrated gas, etc.) companies in the world.
Shell has been one of the preferred oil supermajors that I have recommended here on Seeking Alpha, and I continue to believe that it is one of the first "oil" stocks to be held in your long-term investment portfolio.
However, to profit with shell, it is crucial to adopt a tailored investment strategy that should combine a long-term position with a minimum one-third dedicated to short-term trading to take advantage of the volatility in this sector.
The last quarter saw a weakening of the prices of oil and gas compared to a year ago. The global liquid price of oil was $55.99 compared to $68.21 in 3Q'18. Same trend in natural gas price as we can see below:
Royal Dutch Shell was formed in 2005 from the re-organization of the Royal Dutch/Shell Group - a corporate entity that since 1907 had been headed by two parent companies:
NV Koninklijke Nederlandse Petroleum Maatschappij (Royal Dutch Petroleum Company Ltd.) of The Hague, Netherlands Shell Transport and Trading Company, PLC, in London While it is a fact that Shell is solid as a rock and offers excellent growth potential, I also recognize that the company has underperformed the market for years as well.
It is true, even if we look outside the typical oil and gas frame with newly-developed renewable energy as a growing segment.
It is an inescapable fact attached to any investment associated with energy in general, where stock growth seems confined to a virtual flat line pattern that mirrors the long-term trend of the oil prices.
For instance, if we look at the performance of RDS.B for the past five years compared to the Vanguard S&P 500 ETF (VOO) and a few "big names" such as the Walt Disney (DIS), Walmart (WMT) or Johnson & Johnson (JNJ), we can see that the company has largely underperformed the market. The company value is now over 16% lower than in 2015, while dividend yield compounded would represent about 32%.
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