Friday, June 27, 2014

Amazing History of OIL

In this video I will look at how Middle Eastern events affect the Oil prices. How Peak Oil was popular in the 1920s and early 2000s and how each time Wildcatters finding oil in Texas and other areas in the United States changed it.  

I think one of the most fascinating industries is the Oil industry. If you have followed my blog you know I like to invest in oil companies because of the nice yield and dividend growth and the need for the industries product. 

I will be adding Royal Dutch Shell plc (RDS-B) to my Stocksnowball portfolio as of June 27, 2014. My top 2 oil investments are in my report! I also have publicly stated I am an owner of Exxon Mobil Corporation (XOM) at this current time I do not have it in my Stocksnowball portfolio because of current price and valuation if someone were buying today. 

I will write on RDS-B like I do in my reports. 

Company: Royal Dutch Shell plc 
Symbol:  (RDS-B) 
Industry: Major Integrated Oil & Gas
My Opinion: Dividend, Value 

Where did I come up with the idea to invest in RDS-B? Its been collecting dust on my watch list I never recall looking at it until the old CEO left and its price started moving which led me on doing research on the WHY!. There is no doubt that RDS-B has underperformed under the former CEO. The company was featured on Jim Cramer's Mad Money and gives a pretty good description of the problems under the former CEO click here. I like some of the new asset sales under new current CEO Ben Van Beurden they are selling non-core assets and becoming more disciplined with capital expenditures. The company's main problem was lack of leadership and now it seems to have a strategic plan under the 30 year oil veteran. 

Dividend $3.76 (.94 qtr) 
Current Yield 4.35%
Next Ex-dividend date is expected 8/14/2014

The company has raised its dividend the last few years and does have a nice starting yield. It is in no way a dividend growth company but will have the opportunity to continually raise the dividend under the new management and current plan with money raised and streamlining expenses. The main thing I'm looking at here is a nice dividend while the company works on its new strategic plan. Getting paid to wait! 

Price and Valuation:
As of the June 26th market close $86.45
52 week Range $65.24-$87.59
Last 7 years
Normal P/E Ratio 10.1
Current P/E Ratio based on 1st Q of 2.34 and Est. $7.08 is a P/E of 12.1 

The reported 1st qtr 2014 earnings of $2.34 per share on 4/30/14. This met the consensus of the analysts covering the company. I think compared to its peers it is a bit undervalued but that is expected with the companies past performance. We could see further multiple expansion but I'm more counting on the operating earnings to improve. It is undervalued to the GDF or earnings line currently on but under the diluted earnings it is overvalued it will be interesting to see what the earnings end up with asset sales and buybacks at the end of the year. 

This company has run up this year. Part of the run up is earnings, overall market conditions, and recent oil news and price rise from Iraq. Is there still value? I do think so but I would recommend a 2 or 3 partial position approach. Whatever your normal position size lets say $3000 I would either make 3 purchases of $1000 or 2 purchases of $1500. I am buying now and will wait to see if there is a correction of 5% or 10% to add again. If the first position does well you can always do what I do and let it DRIP. I never recommend firing a full position unless you are at a low you feel it is a good risk reward which we are definitely not near here. Timing the market is always difficult. We are long today at $86.80 

Thanks for reading and feel free to comment! 


Disclaimer: This is a personal weblog. The opinions expressed here are my own. All data and information provided on this site is for informational purposes only. Please do your own research before investing. 

1 comment:

  1. It seems like a lot of the oil majors have gone up. I had been wanting to add one but they seem heated.


Buy I Bonds right now!

I have an opportunity for you to earn 7.12% risk free to your principle for the first 6 months of the investment and 9.62% (expected) for th...