While the oil and gas industry has experienced a volatile period over recent months, the fall in the price of Bitcoin has been exceptionally high. It has dropped by around 80% since reaching an all-time high in December 2017, and it would be unsurprising if further falls were ahead.
In contrast, oil and gas stocks such as Shell (LSE: RDSB) could offer improving share price performance. The company appears to have a low valuation, growth potential and a sound strategy. As such, it may be worth buying alongside another FTSE 100 company that reported a mixed set of results on Tuesday.
That stock in question is plumbing and heating products specialist Ferguson (LSE: FERG). Its performance in the first half of the financial year was encouraging, with revenue rising 8.2% to $10,847m and ongoing trading profit moving 8% higher to $744m.
It was able to make continued market share gains in the US, while acquisitions, including Blackman and Wallwork, were completed. It exited the Dutch plumbing and heating business, as well as other surplus assets, which provided $255m of cash.
However, the company also reported that in recent weeks its growth rate has moderated. It now expects organic revenue growth of 3-5% for the full year. This means its trading profit for the current year is due to be at the lower end of guidance.
While disappointing, Ferguson continues to offer a sound long-term growth outlook. It now trades on a price-to-earnings (P/E) ratio of 12 after a share price fall of 8% following the results. As such, now could be a good time to buy, with the company appearing to offer a wide margin of safety.
Shell also seems to offer good value for money at the present time. As mentioned, the oil price has experienced an uncertain period, falling heavily in the final quarter of 2018 before showing strength in the first quarter of 2019. As a result, investors seem to be demanding wider margins of safety for a number of oil and gas majors, with the Shell share price having a P/E ratio of just 9.8. This indicates it could be subject to an upward rerating over the medium term.
In terms of the company’s growth catalysts, it could benefit from continued high demand for oil and gas over the medium term. Although there is a general move towards cleaner fuels across the world, fossil fuels are still expected to form major parts of the energy mix for many years. And with Shell reorganising its asset base through disposals, it could move into a stronger position to maximise its efficiency and overall returns in the coming years.
With the stock having a dividend yield of around 6.1%, it could also offer an appealing income investing outlook. Therefore, now could prove to be the right time to buy, appearing to offer a more favourable risk/reward opportunity than Bitcoin.
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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.