Is Royal Dutch Shell Plc Or Standard Chartered PLC The Better Contrarian Play Today?

Royal Dutch Shell Plc (LON: RDSB) and Standard Chartered PLC (LSE: STAN) were both losers in 2015, but which will win this year, asks Harvey Jones

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There are plenty of contrarian plays on the FTSE 100 at the moment, mostly in the embattled commodity and oil sectors, but also banking. 

Shell Cracks

Anglo-Dutch oil producer Royal Dutch Shell (LSE: RDSB) and Asia-focused bank Standard Chartered (LSE: STAN) are two that grab my attention. Shell’s share price is down 38% over the past year, while Standard Chartered has fared even worse falling 48%. Shell is of course yet another victim of the oil price crash, while Standard Chartered is exposed both to the Chinese hard landing and commodity sell-off, having loaned an estimated $1.9bn to trading firms in the troubled natural resources sector.

Both have seen their valuations hammered as a result. You can pick up Shell at just 6.61 times earnings, while Standard Chartered is even cheaper at 4.9 times. RDSB’s valuation reflects negative sentiment in the oil sector, STAN reflects both emerging market fears but also more fundamental problems at the company. Management is having a strategic overhaul, shifting away from industrial and investment banking to focus on affluent individuals instead, but the switchover will take time.

Standard Slips

As both companies have struggled, their dividends have come under pressure. Shell has so far maintained its proud record of never having cut dividends since the war, but unless the oil price bounces something will have to give, with the stock now yielding a crazy 9.40%. If more investors believed this was sustainable, the share price would inevitably be higher, but clearly there is a lot of scepticism out there, even with cover of 1.6.

The oil bounce will come but investors may have to be patient, given the ongoing supply glut even before Iranian oil hits the market. Until then, the dividend will remain in growing peril. There is no such tension at Standard Chartered, which has already bowed to the inevitable and scrapped its payout.

Right Royal Risk

Both companies have suffered a collapse in earnings per share, with Shell’s EPS growth down 44% in 2015,  and Standard Chartered falling even more heavily at 61%. At least, the future does look brighter, with Shell’s growth forecast to be 7% this year, while Standard Chartered should weigh in with 28% EPS growth. While Shell’s revenues are expected to dip slightly this year pre-tax profits are forecast to jump from £6.85bn to £11.49bn, bolstered by extensive cost-cutting at the company rather than pricier oil.

Unchartered Waters

Standard Chartered is inevitably cutting costs as well (which company isn’t these days?) and pre-tax profits are also forecast to rise this year, from £1.48bn to £2.17bn. Both companies look attractive contrarian plays right now, although Shell is at the mercy of a variable it cannot control. Arguably, Standard Chartered is as well, as we wait to see what happens to emerging markets.

On balance, I would lean towards Shell. If only oil could post substantial gains, it could swiftly turn into a winner. Right now, however, that is a big “if”.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »