UK-based Shell plc (NYSE:SHEL) continues to break out of its shell, so to speak. In 2023, Shell stock outperformed its stateside peers. So far this year, has continued to move higher, for reasons beyond just the latest spike in fossil fuel prices.
That is, investors have also reacted positively to a spate of company-related developments over the past few months. Yet even after SHEL’s latest moderate move higher, there’s still the opportunity to lock down a long-term position at a reasonable price.
It all has to do with the factors that have already propelled shares higher, as well as potential catalysts on the horizon.
I’m not saying that this large-cap energy stock is going to make a “to the moon” move throughout the year. However, there’s a clear path for the stock to deliver another year of above-average gains relative to other names in the space.
Investors Have Been Warming Back Up to Shell Stock
Until 2021, Shell plc, formerly known as Royal Dutch Shell, operated as a Anglo-Dutch company, with legal domicile in both the U.K. and the Netherlands. However, that year, Shell left the Netherlands for good, becoming solely a U.K.-domiciled entity.
Investors were happy with this move. Besides simplifying Shell’s corporate structure, this move was also seen as something that would enable Shell to break free from European pressure to quickly get out of the fossil fuel business, to become primarily a renewable energy company.
Over the past year, Shell stock has kept rallying, as the company has taken further action to assuage investors that it intends to remain an oil and gas company for the time being.
Other actions from management, like an increased commitment to dividends and buybacks, has also helped to shift sentiment for SHEL back to bullish.
Since the start of 2024, bullishness for Shell has kept on climbing. The market reacted positively to Shell’s latest earnings release. Management has also kept on slowing down its energy transition plans.
As InvestorPlace’s Chris MacDonald discussed last month, investors have also reacted positively to recent layoff news. These layoffs further indicate Shell’s focus on maximizing shareholder value.
This Sentiment Shift Stands to Continue
Shell stock currently trades near multi-year highs, but don’t assume that shares are at risk of running out of runway. For one, after exceeding expectations last quarter, the company may be poised to beat forecasts once again, when the integrated oil giant next reports earnings in May.
Yes, earlier this month, Shell warned investors that results for its liquid natural gas trading business will decline during Q1 2024, relative to Q4 2023. However, the strong performance of its crude oil trading business could end up more than making up for this.
Updates to guidance could indicate stronger results ahead, thanks to factors like the above-mentioned run-up in crude oil prices.
Long-term, SHEL’s breakout rally could carry on. Again, thanks to existing catalysts and potential future catalysts. Shell remains committed to capitalizing on rising demand for LNG, which the company believes will rise in use by 50% by 2040.
Regarding its changing energy transition strategy, Shell’s focus on efforts like quadrupling the size of its EV charger network could prove to be a profitable move, not simply a means to “go green.”
Management may also be contemplating a major move, which could help to bridge a longstanding valuation gap.
As the Bull Case Strengthens, Make SHEL a Buy
SHEL remains undervalued compared to its U.S.-based counterparts. Shell trades for around 9.1 times earnings. ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) trade for 13 and 12 times forward earnings, respectively.
Shell CEO Wael Sawan believes that a big reason for this valuation gap is that Shell still has its primary stock market listing on the London Stock Exchange, rather than on a U.S. exchange like the New York Stock Exchange.
While not certain, a listing change could lead to a re-rating for shares. So too, could positive developments related to Shell’s appeal of a climate ruling from a Dutch court, issued right before its Netherlands exit.
Taking into account the myriad of factors that could drive additional gains, not to mention the stock’s 3.83% forward dividend yield, there’s a clear takeaway. As the bull case strengthens, make Shell stock a buy.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.