economy
Even if an Iran deal calms energy markets, one oil stock can still stand out
Shell plc (SHEL), along with other large integrated oil companies, have benefited from higher oil prices and should warrant investor attention.
TL;DR
- Shell plc (SHEL) is benefiting from higher oil prices due to geopolitical instability and disruptions in the Strait of Hormuz.
- The company's integrated model and trading arm are positioned to thrive, with logistical backlogs and the need to replenish strategic reserves supporting energy prices.
- A moderately bullish income play is suggested, specifically selling the June 85 Puts for a credit of approximately $1.75, offering a potential annualized yield of over 17%.
- The closure of the Strait of Hormuz has removed millions of barrels from global supply, directly benefiting Shell's upstream and integrated gas margins.
- Shell has completed a $3.5 billion share buyback program and is expected to announce a new tranche, combined with a dividend yield of around 3.2%, offering strong capital returns.
- The stock has historically shown low volatility around earnings releases, providing a margin of safety for the proposed put option strategy.
- Shell's current valuation (forward P/E of ~8.7x) does not reflect its current cash generation, making the proposed trade attractive.