So far, 2023 has been a disappointing year for the FTSE 100. Since 30 December 2022, the Footsie has risen just 0.5%, excluding cash dividends. Meanwhile, some of the index’s individual stocks have easily beaten this return, including the Shell (LSE: SHEL) share price.
Bouncing back
At its 52-week low on 24 March, Shell shares briefly dropped as low as 2,149.45p. However, as stock markets picked up, the share price gushed upwards again.
On Friday (24 November) Shell stock closed at 2,595p, valuing this oil & gas supermajor at a whopping £169.6bn. This makes the group the largest member of the FTSE 100.
That said, the shares have slipped back since hitting a 52-week high of 2,801p on 18 October. They now stand 7.4% below this high watermark. However, Shell stock has risen by 10.4% over the past six months, easily beating the Footsie’s loss of 1.8% over the same period.
Here’s how the Shell share price has performed over five timescales:
| One month | -3.4% |
| Six months | +10.4% |
| 2023 to date | +11.7% |
| One year | +9.7% |
| Five years | +9.6% |
The shares have produced positive capital gains over periods ranging from six months to five years — something that the wider FTSE 100 has failed to do.
Also, it’s important to note that the above figures exclude dividends, the regular cash payouts made to shareholders by some companies. As one of the UK’s largest corporations, this Anglo-Dutch giants pays out billions of pounds in surplus cash each year to its owners.
The shares could jump again
When I look at this mega-cap stock today, I see value at current levels. At a share price of 2,595p, this stock trades on a multiple of 7.7 times earnings, which translates into a 13% earnings yield. This is much cheaper than the FTSE 100’s corresponding figures of 10.9 and 9.1%, respectively.
Then again, Shell’s dividend yield of 3.9% a year is a whisker short of the Footsie’s yearly cash yield of 4%. But this payout is covered a healthy 3.3 times by earnings — a wide margin of safety. Furthermore, the company is raising its quarterly dividends, committing to lift them by 4%+ a year.
In addition, the group is using its huge cash flows to buy back millions of its own shares. For example, in the latest share buyback announced on 2 November, the energy giant committed to repurchasing $3.5bn (£2.8bn) of its shares over the next three months. Wow.
To me, these seem like classic hallmarks of an undervalued stock. However, Shell’s future revenues, earnings and cash flows are largely driven by oil prices. And the cost of a barrel of Brent Crude has dropped by around 10.8% in the past month. This explains the share price’s falls from its 18 October high and remains a risk for the stock.
Finally, though I see the Shell share price heading higher than current levels, I won’t be buying the shares just now. First, because I don’t have enough investable cash to add a reasonable stake to my family portfolio. Second, because we already own one oil stock and my wife doesn’t want to own more!
