This post was just published on ZYX Buy Change Alert.
Oil has been crushed. Please see the Morning Capsule. The best oil stock to invest in right now is RDS.B. Of special note is about 7% dividend. Also from a technical perspective, the stock has held up well during this carnage in oil. Historically this means better things to come.
This stock is also in the Model Portfolio. The buy zone is $47 to $54.26, preferably below $52.76. The target zone remains $68 to $76, the tentative plan is to add more if the stock goes lower, for this reason it is important to adhere to the recommended quantity of 30 – 45% as this time. The stop zone remains $32 to $32.43. The stock is trading at $54.19 as of this writing.
For your convenience a prior post is pasted below:
THE BEST ENVIRONMENTAL FRIENDLY OIL SUPER MAJOR WITH 6.85% YIELD
My long-time readers know that my calls tend to be measured and I am not given to hyperbole. So why do I call Royal Dutch Shell (RDS-B) the best super major oil?
There are six super major oil companies: BP Plc (BP), ConocoPhillips (COP), Chevron (CVX), Royal Dutch Shell (RDS.A) (RDS.B), Total SA (TOT), and Exxon Mobil (XOM).
In our analysis at The Arora Report, in terms of future projected returns for the long-term investor, Royal Dutch Shell is simply the best among the super majors. As of this writing it is trading at $54.89 and yielding 6.85%. The Arora Report target zone is $68 to $76. The midpoint of the target zone means 31% capital appreciation. Further, the stock has the potential to about double over the next four to five years if oil and natural gas prices recover.
When Bad Is Good
Paradoxically in the world of investments, what seems bad on the surface is often good for the discerning investors. The bad depresses the stock price. Those investors who are able to get in at the depressed price make huge profits when things turn around.
Royal Dutch Shell is a prime example of the foregoing. The bad right now is that the company has a negative free cash flow and does not cover its dividend. The infographics tells the story of the cash flow along with other relevant information.
Please click here for free cash flow and other relevant financial data infographic.
Going from bad to good means big change; in our ZYX Change Method, five stages of change are defined. Royal Dutch Shell at present is at stage one.
Please click here for Five Stages of Change as defined by ZYX Change Method.
The Plan
Royal Dutch Shell has a rock solid plan to increase the free cash flow. In our estimation, if oil and natural gas prices cooperate, Shell might reach about $11 per share free cash flow by 2020 – 2021. At present, the dividend is only $3.76 per share. Assuming Shell were to succeed, dividend might be increased and the stock may about double from here.
Shell is reducing operating costs and capital investments. The company is also engaging in divestments to raise cash. Infographics tells the story.
Please click here for infographics of the divestment program.
Please click here for infographics of cost reduction.
Please click here for infographics of reduced capital spending.
Environmental Friendly
With the large acquisition of BG, Shell has become the biggest natural gas player with a dominate position in liquefied natural gas (LNG) in the world.
Natural gas is the only fossil fuel that has increased its market share. LNG is likely to see explosive growth in developing Asian countries over the coming years. The reason is that natural gas is the cleanest burning conventional fuel.
Shell, in significant ways more than any other oil super major, has made a commitment to LNG and thus to being environmental friendly.
How To Buy
Investors can start a small scale in right here. Patient investors may wait for dips in the buy zone of $45 to $52.76 to scale in more. The Arora Report buy zones are designed to give a 70% probability of great fills over the next 120 days.
No Free Lunch
In the world of investments, there is almost never a free lunch. This is also true for Shell stock. If oil and gas prices fall and stay low or the plan is not executed, there is potential for the dividend to be cut. If the dividend is cut, the stock is likely to fall. For this reason, it is important to diversify between energy stocks in your portfolio. The other energy stocks in The Arora Report ZYX Buy portfolio are Halliburton Company (HAL), Marathon Oil (MRO) and Anadarko Petroleum (APC). In our ZYX Allocation portfolio there are two energy ETFs VanEck Vectors Oil Services ETF (OIH) and First Trust ISE-Reverse Natural Gas ETF (FCG).
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