Stock Analysis & Ideas

Shell Stock Climbs after Breaking Off Russian Oil

Shares of the oil producer Shell (SHEL) notched up so far today, and with good reason. With gas prices at a 14-year high, companies that have anything to do with producing gas should be on top of the world.

Shell managed to make new headway by joining the growing field of oil companies refusing to handle Russian products. Considering the overall environment, I’m bullish on Shell, along with most oil stocks.

The last 12 months for Shell stock have been mostly up. While it spent March through September 2021 mainly flat, substantial gains followed that let Shell briefly breach $55. It may be set to do so again under the latest circumstances.

Shell’s latest gains came after the company publicly apologized for buying a shipment of Russian oil after its invasion of Ukraine. Shell also went on record, noting it would shut down several joint ventures currently operating in Russia. That included service stations, aviation fuels, lubricants operations, and any term contracts staged with Russian companies.

Wall Street’s Take

Turning to Wall Street, Shell has a Moderate Buy consensus rating. That’s based on four Buys and two Holds assigned in the past three months. The average Shell price target of $51.33 implies 1.8% downside potential.

Hedge Funds Retracting, but the Dividend Is Up

Of course, there are several oil providers. So, why specifically look to Shell for success? Hedge funds seem concerned about Shell’s potential for success.

The TipRanks 13-F tracker suggests that hedge funds are selling SHEL stock, if moderately. Hedge funds lowered their positions in Shell from around 34.88 million to 33.95 million in the space between September and December 2021. Oddly, there’s been little word about what insiders are doing with Shell stock.

Further, Shell’s dividend history also lends it a note of extra potential, especially as an income stock. While the company slashed its dividend back in May 2020, it’s been recovering ever since. With the dividend on the rise, and oil prices contributing cash flow accordingly, Shell may be able to return to its previous dividend and provide added value for income investors.

Right Place, Right Time, for Now

Oil companies, in general, are usually good for bulls. There’s very seldom a time when oil isn’t strongly in demand as it is one of the things that runs everyday life. Well, there was April 2020, when oil prices briefly went negative, but those were different circumstances.

Now, prices are on the rise at a time when people are getting back out and driving. With President Biden calling for employees to get back in the office—and engage in the daily driving that requires—it’s another boost to oil.

It’s a good time, in general, to be bullish on oil. Even Venezuela is looking to get back into the oil market thanks to Russia’s forcible excision from the field. However, there’s one real Achilles’ heel when it comes to oil prices: the higher they go, the more users start looking for alternatives. With gas prices already at a high not seen in over a decade, the chance of more interest in electric vehicles increases.

However, there’s a fly in that ointment as well. One of the biggest components in electric cars is nickel. The largest producer of nickel is Norilsk Nickel, a Russian company. This may not mean much to the Chinese electric car market, which will likely still have full access. However, for companies like Tesla (TSLA), a much greater problem may be afoot.

It’s also an excellent time for small-scale shale oil producers. Larger-scale shale producers like Pioneer Natural Resources (PXR) are holding off due to shareholder concerns about a lack of discipline.

However, smaller-scale operations without shareholders to answer to may be looking to step up. The larger operations may have little choice as shareholders wonder where their portion of these exploding prices can be had.

Concluding Views

Shell is in a good position right now to realize gains as a result of surging oil prices. When prices reach levels that make President Biden suggest oil companies are engaging in “illegal conduct,” it’s clear that there are gains to be had. While there are certainly other options in the oil field, Shell has proven itself to be a solid pick over time.

Granted, Shell is currently trading over its average price target. It’s still well below its highest price targets, and frankly, that low target will probably never be a factor. Oil companies are likely to have things their own way for the next few months or more. That’s good news for Shell and for those looking for a solid income play as well as long as that dividend holds up.

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