Royal Dutch Shell: Black Swan Event Is Often An Opportunity To Buy by Fun Trading

in hive-167922 •  6 months ago 

Summary

  • The fourth-quarter profit plunged by 48%, and despite warning about a sizeable non-cash impairment in December, the company surprised the market by the underlying weakness.
  • The company is slowing down the share buyback after full-year 2019 earnings slid by 23% to $16.462 billion this year.
  • Royal Dutch Shell is one of my long-term stocks, and I am using this slide as an opportunity to add.
  • This idea was discussed in more depth with members of my private investing community, The Gold And Oil Corner. Get started today »

Source: Royal Dutch Shell

Investment Thesis

The Hague, Netherlands-based Royal Dutch Shell (RDS.A) (RDS.B) is incorporated in the United Kingdom. Shell is one of the largest oil and gas integrated (Upstream, downstream, Integrated gas, etc.) companies in the world. It is considered the bellwether of the oil industry and is widely owned.

Shell has been one of the preferred oil supermajors that I have recommended here on Seeking Alpha, and I continue to believe that it is one of the first "oil" stocks to be held in your long-term investment portfolio. Even if the industry is experiencing some selling pressure as I speak.

However, to profit with shell, it is crucial to adopt a tailored investment strategy that should combine a long-term position with a minimum one-third dedicated to short-term trading to take advantage of the volatility in this sector. The coronavirus in China is an excellent example of that unpredictable volatility.

For instance, if we look at the performance of RDS.B and the S&P index for the past five years, we can see that the company has largely underperformed the market.


Data by YCharts

The only solution is to trade short term a significant part of your position to profit fully from the cyclicity and volatility of the oil sector. I believe trading short term about 30% is a minimum that will allow you to double your return on investment.

The company is one of my "six oil majors" group, which includes Exxon Mobil (NYSE:XOM), BP Plc (NYSE:BP), Equinor (EQNR), TOTAL S.A. (NYSE:TOT), and Chevron (CVX) that I covered on Seeking Alpha regularly. I have also added ConocoPhillips (NYSE:COP) that I consider somewhat equivalent.

Royal Dutch Shell is by far the biggest of the five oil supermajors in terms of revenues, but it is second to Exxon Mobil in terms of Market Capitalization. Below, I have indicated the 4Q'19 Market Capitalization and the dividend yield of the seven oil majors for you to compare.

The Anglo-Dutch integrated oil company is paying a high secure dividend as well. The company has never missed one single dividend payment since the end of World War II and has been considered a preferred stock for various institutional investors for many decades. The dividend for the RDS.B is paid 100% to the U.S. investors, which is another bonus.

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