The Motley Fool

Is It Finally Time To Give Up On Royal Dutch Shell Plc?

To suggest the game is up at Shell (LSE: RDSB) could be considered ludicrous given the investor stampede of recent weeks.

The fossil fuel giant has seen its share price explode 30% in the past two months, moving in lockstep with the Brent benchmark’s surge back above the $40 per barrel milestone.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

But with data surrounding the oil sector still worsening, I see little reason for crude’s recent march higher, leaving Shell’s share price in danger of a massive reversal.

Supplies surging

Stockpile data from the US disappointed yet again this week, a 9.4m barrel build in the latest period exceeding forecasts and taking total levels to a fresh record of 532.5m barrels.

The world is still desperately awaiting a co-ordinated production cut from OPEC, Russia and the US. But the pumpers can’t even agree to an output freeze, let alone a much-needed reduction to ease the pressure on bloated inventories.

And with China’s economy locked in a hair-raising tailspin, there’s clearly little prospect of this excess material evaporating any time soon.

Fragile forecasts

The City expects this backcloth to keep earnings under pressure at Shell, not surprisingly. A 34% decline is currently pencilled-in for 2016, leaving the company trading on an extremely-high P/E rating of 22.8 times.

Still, the number crunchers expect the oil leviathan to rebound with a 79% bottom-line bounce next year, driving the earnings multiple to just 12.8 times.

While this is a very decent value on paper, I believe stock pickers should resist the temptation of piling into the business. Until supply/demand indicators start to pick up, I believe predictions of a near-term bounceback at Shell are built on sand foundations.

Long-term worries

Indeed, I reckon there’s a real danger that Shell will end up becoming a mere shadow of its former self, and fail to deliver the stonking returns of previous times.

Firstly the company continues to hive off assets at a hair-raising rate. Shell announced in March it was raising its 2016 divestment target to $30bn in a desperate bid to mend its battered balance sheet, up $10bn from its previous goal made a few months earlier.

On top of this, Shell is still rapidly scaling back its capex budgets, a strategy that has seen major projects from drilling in Alaska to development of the Carmon Creek oil sands asset in Canada fall by the wayside.

Many will point to Shell’s acquisition of BG Group as a potential growth driver moving forwards. But the chronic oversupply washing over the liquified natural gas (or LNG) market is expected to remain well into the next decade at least, casting doubts over the economic viability of the tie-up. Indeed, Woodside Petroleum put plans to develop its Browse LNG project in Australia on ice just this week.

And with global lawmakers increasingly shunning fossil fuels in favour of clean energy like solar and wind, Shell is in severe peril of being left out in the cold.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Royston Wild 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.