At 890p, are Shell shares now a bargain not to be missed?

Shell shares are trading close to their lowest level in 25 years, but the company’s rising profits suggest this could be an opportunity.

| 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.

macro shot of computer monitor with FTSE 100 stock market data in trading application

Image source: Getty Images

It’s been a terrible year to own Shell (LSE: RDSB) shares. The stock has crumbled in value this year, falling a staggering 62%, which makes it one of the worst-performing investments in my portfolio. 

However, I’m optimistic about the company’s outlook. The firm’s size, cash generation and growth plans suggest to me the stock is deeply undervalued at current levels. Today, I’m going to explain why. 

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Shell shares on offer

At the end of last week, Shell published its third-quarter results. The figures were a breath of fresh air for the company’s investors. 

The headline number was 4%, which was the amount the company decided to increase its third-quarter dividend. After cutting the dividend earlier this year for the first time since World War 2, this was unexpected. Indeed, many analysts believed Shell’s investors would have to make do with the lower payout for years. 

But that option is no longer on the table. Management has stated that Shell will target a 4% per annum dividend increase going forward. What’s more, management is promising additional cash returns when the group has hit its debt reduction goals. 

This is a significant shift from Shell’s stance earlier in the year, and could significantly improve sentiment towards its shares. 

As well as increasing its dividend, the group’s bottom line is back in the black. On a statutory basis, it reported a third-quarter pre-tax profit of $442m, up from a severe $23.9bn pre-tax loss in the second quarter

Growing profits helped the organisation reduce overall debt in the period. At the end of September, group gearing was 31.4%, down from 32.7% at the end of June. These numbers suggest that slowly, but surely, Shell is cleaning up its balance sheet. 

Positive outlook 

These are the reasons why I’m optimistic about the outlook for Shell shares. The company’s actions to cut costs and increase cash flow have helped stabilise the group, and shareholders should benefit in the years ahead. 

In the meantime, following the recent dividend hike, the stock now supports a dividend yield of close to 6%. I believe this level of income looks highly attractive in the current interest rate environment. 

As such, I think Shell shares look like a bargain buy at current levels. The company’s latest trading update shows the business is still churning out profits and reducing debt. This suggests to me the stock has been oversold in 2020. Therefore, the stock may offer a margin of safety at current levels. 

On top of its capital growth potential, the firm’s dividend and cash return plan also imply investors may see high total returns from the stock in the years ahead. 

Overall, I reckon one may benefit from buying Shell shares today in a diversified portfolio of blue-chip income and growth stocks.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Rupert Hargreaves owns shares in Royal Dutch Shell B. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Satellite on planet background
Investing Articles

£3.3bn raid sends the Vodafone share price up. Here’s what I’d do

The Vodafone (LON:VOD) share price opened higher on Monday, as news of a big buy from a major investor was…

Read more »

Happy woman with excess weight smiling and dancing alone in sports clothes
Investing Articles

Top British growth stocks for May

We asked our freelance writers to share the top growth stocks they’d buy in May, which included miners and musical…

Read more »

Electric cars charging at a charging station
Investing Articles

A cheap UK share I’d buy for the electric vehicle revolution

This cheap UK share has collapsed in value since I bought last year. But here's why I'm thinking of buying…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

3 distressed stocks with huge potential that I’m considering for my portfolio!

These three distressed stocks have performed badly in 2022, but that doesn't mean they won't recover. Here's why I'm considering…

Read more »

Luxury inside of NIO car
Investing Articles

Here’s why I’ve just bought NIO shares!

I've recently bought NIO shares, despite the stock being down nearly 80% over the past year. Here's why!

Read more »

Mature people enjoying time together during road trip
Investing Articles

Is now the time to buy Tesla shares?

Tesla's share price has fallen in 2022 and so has its valuation. Edward Sheldon looks at whether this is a…

Read more »

A graph made of neon tubes in a room
Investing Articles

Are Woodbois shares worth me buying at 4.7p?

Jon Smith considers the recent surge in price for Woodbois shares, and wonders if the move lower last week represents…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How I’d generate a passive income for life with just £20 a week

Dividend shares can be an excellent way to earn a passive income for life. Our writer discusses a plan to…

Read more »