Why I’m Bullish On Royal Dutch Shell Plc For 2016

Royal Dutch Shell Plc (LON: RDSB) has its problems, but could be a star performer for the long term.

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.

sdf

Like it or not, no investment is without risk. Certainly, some asset classes such as bonds and cash come with reduced risk compared to shares. But even they run the risk of default in the case of the former and inflation in the case of the latter. In fact, even the riskiest of shares can hold appeal if they offer sufficient potential rewards given their long-term outlook.

One sector that appears to be among the riskiest at the present time is oil. With its price showing no sign of staging a recovery anytime soon, it would be unsurprising for it to continue to fall during the first part of 2016. As such, investors in this space must brace themselves for the possibility of further pain.

However, in the long run, energy appears to be a superb sector in which to invest due to population increases, as well as rising wealth in the developing world. The end result of both of these factors is higher demand for energy. And with estimates varying as to the extent of this, one thing appears to be consistent – that is, fossil fuels such as oil and gas will still make up a significant proportion of the world’s energy mix even in the very long term.

The long game

Therefore, buying financially sound oil companies right now could be a highly profitable long-term move. One stock that appears to fit the bill is Shell (LSE: RDSB). Clearly, 2015 has been a horrific year for its share price, with it being among the 10 worst performers in the FTSE 100. But it looks set to survive the current downturn and, more importantly, strengthen its own position relative to its peers.

Evidence of this can be seen in the fact that Shell is proceeding with a $70bn deal to purchase BG. While many of its peers are worried about surviving the next year, Shell is thinking long term and is taking advantage of discounted prices to improve its asset base and position itself for improved future growth. Encouragingly, its balance sheet will remain very strong even after taking on additional debt to fund the deal and the company’s cash flow could realistically cope with further acquisitions in future.

Furthermore, Shell currently trades on a price-to-earnings (P/E) ratio of just 12.3 and yields 8.4%. Although there’s scope for a dividend cut and a further fall in its share price, both of these figures indicate that Shell offers good long-term value for money. As such, a purchase now could lead to a profitable 2016 from an upward rerating and a high income return.

Undoubtedly, there are significant risks ahead for Shell and things could get worse before they get better. But for long-term investors now could be a time to buy, rather than sell, the oil major.

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.

Peter Stephens owns shares of Royal Dutch Shell. 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

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

B&M shares are at record lows! Is now the time to consider buying?

The retailer, demoted from the FTSE 100 to the FTSE 250 last year, continues to struggle. But are B&M shares…

Read more »

Investing For Beginners

2 reasons why the stock market could hit 10,000 points by December

Jon Smith explains how the makeup of the UK stock market and the current valuation could support a move towards…

Read more »

Queen Street, one of Cardiff's main shopping streets, busy with Saturday shoppers.
Investing Articles

Why this FTSE 100 rocket is this investment trust’s number 1 holding

A UK investment trust is certainly going against the grain by having this FTSE 100 share as a high-conviction holding…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

These 2 FTSE growth stocks jumped 8% and 4.5% today!

Ben McPoland takes a closer look at a pair of FTSE stocks that are performing really well recently. Why are…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

This under‑the‑radar FTSE 100 growth stock is also a secret dividend superstar!

Harvey Jones belatedly wakes up to a brilliant FTSE 100 growth stock that has an equally remarkable track record of…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

Barratt Redrow share price plunges 9% on profits hit – time to consider buying?

Harvey Jones says FTSE 100 housebuilders continue to suffer with the Barratt Redrow share price slumping on a profit warning.…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Growth Shares

Why the next month could make or break the Lloyds share price

Jon Smith outlines two key events in coming weeks that could influence the Lloyds share price, leading him to make…

Read more »

This way, That way, The other way - pointing in different directions
Investing Articles

The B&M share price falls 13% despite improved Q1 sales. What should investors do?

Despite sales growing on a like-for-like basis, the B&M share price is falling yet again. So is the FTSE 250…

Read more »