BP and Shell share prices are rising today – are we looking at another big rise?
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I A shell (LSE: SHEL) share price jumped 5% in early trade today, with BP (LSE: BP) did the same. Anyone wondering why they only need to check the headlines. It’s about the recent upheaval in the Middle East.
I FTSE 100Oil weight and defensive stocks are your saving grace today. I can say the same about my SIPP. I own a BP and a weapon maker BAE Systemsand they help relieve pain elsewhere in my portfolio. Is this the start of a return to form for BP and Shell?
This attack also eased any lingering doubts about my decision to buy BP in September 2024. I entered when oil stocks were out of favor and crude was down to $60 a barrel. It’s a cyclical industry, so I bought when sentiment was weak and valuations looked reasonable.
My concern was that Big Oil would remain unpopular as the global economy struggled and the green revolution gathered pace (with BP aside). But I also thought that the argument that oil and gas are passive commodities seems implausible. As we see today, they are still important in the global economy. Fears that Iran and its allies could target tankers in the Strait of Hormuz, through which a fifth of the world’s oil supply passes, are enough to shake markets.
The FTSE 100’s saving grace
It is worth remembering how the shares of BP and Shell increased in 2022, after Russia’s invasion of Ukraine forced Europe to look elsewhere. The underperformance of the sector over the past few years reflects the easing of these power shocks.
In five years, BP shares are up 65% while Shell is up 112%, with gains on top. One-year gains are as low as 10% and 15%, even after this morning’s hop.
No company is a pure play on oil prices. They have trading, refining and other activities besides dirty pumping. However, in the short term their direction will be shaped by geopolitics. And the danger just intensified. Expectations for large oil stocks may be exceeded. Lately, investors have done their best to ignore war talk.
Budget and growth prospects
In The Motley Foolwe believe that investors should buy stocks with a long-term perspective, rather than trying to trade on short-term volatility. On that basis, I still think both are worth considering. BP trades at a weighted forward price of earnings of around 13.5, while Shell is cheaper at around 11.5.
Income was my main reason for choosing BP over Shell. Its trailing yield is around 5%, beating Shell’s 3.3%. I also felt that BP had great potential for recovery, given the financial difficulties it had entered. New CEO Meg O’Neill has a big cleaning job on her hands.
Both companies reported in early February and the headlines were negative. BP has halted share buybacks to strengthen its balance sheet as oil prices fall. Shell missed profit forecasts, yet still generated strong cash flow. It announced a new acquisition of $3.5bn and increased its dividend by 4%.
These are always risky, controversial businesses operating in a volatile world, and I understand why some investors don’t want to go near them. But from an investment perspective I still think BP and Shell are worth considering today, regardless of what happens next globally.
