With the oil price having soared in the last year, it is unsurprising that Shell (LSE: RDSB) has done likewise. The oil and gas major has recorded capital growth of 19% in the same time period, and there could be much more to come. Not only does the oil price have further upside potential, the company’s valuation still seems to be relatively low given its long-term potential.
Of course, Shell is not the only energy-related stock which could be worth buying. Reporting on Monday was an alternative energy company that could be a strong performer in the coming years.
The oil price could continue the rise which has seen it move increasingly closer to $100 per barrel in recent months. Although the consensus among major oil-producing nations is for higher production over the medium term, the reality is that supply disruption remains a serious threat to global supply. The political outlook for Iran could lead to reduced production which is unable to be offset by higher production elsewhere. And with Venezuela also facing a period of political instability, it would be unsurprising for demand growth to exceed supply growth over the medium term.
This would clearly be good news for Shell. Even after its share price rise of recent months, it continues to offer a wide margin of safety given its diverse asset base. It has a dividend yield of 5.5%, which remains historically high for the company and suggests that investors remain cautious about its outlook.
Certainly, there is scope for further volatility in the stock’s valuation. The oil price could fall, for example, and hurt investor sentiment. However, with the company seeking to utilise its rising free cash flow to reduce debt and it being engaged in an asset disposal programme, its future appears to be highly sustainable. As such, the potential for a higher oil price and its low valuation mean that Shell could be a sound retirement stock.
Of course, cleaner forms of energy are likely to become increasingly in demand among consumers over the long run. As such, investing in energy storage and clean fuel company ITM Power (LSE: ITM) could be a shrewd move. The company released final results on Monday which showed that it continues to deliver on its development potential.
It was able to increase revenue by 53% versus the prior year, with it focusing its efforts on increasing headcount and planning larger production facilities. They could help it to deliver on its ambitious growth plans, while it seeks to maximise a growing portfolio of revenue-generating assets in the shape of the first real hydrogen refuelling network in the UK.
With ITM Power having raised £29.4m of working capital during the year, it appears to have the financial firepower to invest for future growth. While a lossmaking business today, in the long run it could deliver impressive financial performance and a rising share price.
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Peter Stephens owns shares of 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.