It’s been a good year thus far for investors in Shell (LSE: RDSB) (LSE: RDSA), with the oil major delivering share price gains of 13% while the FTSE 100 is up just 1% over the same time period. Indeed, shares in Shell are up 3% today (at the time of writing) after the company released an encouraging update for the second quarter of the year. With this in mind, is Shell now the top pick among oil majors?
A Positive Second Quarter
Shell’s profit in the second quarter was 33% higher than in the same quarter last year at $6.1 billion versus consensus forecasts of $5.5 billion, with the company’s bottom line benefiting from unexpected increased production as well as higher prices. Indeed, this is perhaps the key takeaway for investors. The market had expected Shell to report declining production volumes as it has struggled to make headway in this area in recent years; however, its production was slightly higher. This shows that the company’s strategy of improving efficiency could be starting to have an impact, which is great news for investors going forward.
The results, were of course, marred by write-downs and there are likely to be more in future. For example, US gas assets took a big hit in the quarter and this shows that, while Shell is certainly making progress, it is by no means the finished article. However, the results show it is making encouraging progress towards its goal of becoming leaner, more efficient and more profitable.
Choice Among Oil Majors
Of course, Shell isn’t the only oil major that is making encouraging progress. BP‘s (LSE: BP) (NYSE: BP.US) recent update showed that the company is steadily making a comeback from the Deepwater Horizon oil spill in 2010, with its profitability improving and its asset base remaining highly attractive.
Indeed, there is good value on offer at both companies, with Shell currently trading on a price to earnings (P/E) ratio of 11.7 and BP having a P/E ratio of just 10.1. Both stocks are currently great value compared to the FTSE 100, which has a P/E ratio of 13.8 at present. Furthermore, the yields on offer remain highly attractive, with Shell’s yield being an impressive 4.3% and BP having a yield of 4.8%.
Clearly, BP offers investors a higher yield and better value than Shell and, therefore, could prove to be the better long-term play. The one cloud on the horizon, though, is further sanctions against Russia, which BP stated could impact upon its future earnings. For this reason, although it is slightly more expensive and comes with a lower yield, Shell could prove to be the less risky of the two stocks. This means that it appears to be the #1 oil major, although it is closely followed by BP in second place.
