Profits soar

Let’s start by looking at just how good business has been.

Thanks to soaring oil and gas prices, profit came in at $4.1bn for the final three months of last year. This compares favourably to the $3.3bn in Q3. All told, BP made a $12.8bn profit in 2021 — the company’s highest number for no less than eight years.

Bumper cash flow has also allowed BP to strengthen its balance sheet. Net debt stood at $30.6bn at the end of 2021. That’s a reduction of $8.3bn from 2020. 

CEO Bernard Looney said the results show that the company is “performing while transforming” into an integrated energy company with more focus on offshore wind and hydrogen projects. I can’t see any reason to argue against that based on today’s figures.

Dividend delight

One of the main attractions of the shares over the years has been its dividend stream. Today, it said it would be returning 5.46 cents per share for the last quarter.

Analysts are predicting that the total payout will rise very slightly in 2022 to 22.4 cents (or 17p) per share. That gives a yield of 4.1% at the current BP share price. For perspective, that’s substantially more than the 0.61% in interest I’d get from the best Cash ISA.

For its part, BP is forecasting being able to raise the annual cash return by “around 4% through 2025“. Having been buying back its own stock by the bucketload over recent quarters, it also plans to purchase another $1.5bn worth of shares from surplus cash flow over Q1. 

Getting political 

If today’s report made for pleasant reading for investors, the sentiment was not shared by campaigners. This highlights something that I’d need to consider before investing today, namely the threat of a one-off windfall tax. This could certainly have an impact on the near-term performance of the BP share price.

Another thing I’d need to remind myself is that BP has no control over the price of what it produces. Indeed, the company made a point of stating that demand for oil and gas could remain volatile in 2022. Lower production and flat margins are also likely in the current quarter. Again, this could prove a headwind for the BP share price.

Returning to dividends, it’s also vital to remember that payouts are never guaranteed. In fact, BP has been very inconsistent over the years in what it returns to shareholders. That could be an issue for me if I were overly dependent on the £80bn cap company for passive income. 

Better buy?

Contrary to many stocks, the BP share price is riding high in 2022. Up 17% year-to-date and almost 57% in 12 months, this is a perfect example of how profitable it can be for me to buy when no one else is. 

Seen purely from an investment perspective, I still think there’s a place for the stock as part of a fully-diversified income-focused portfolio. If capital gains were my chief concern, however, I’d easily choose this other stock from the FTSE 100 over the oil behemoth. I’m not buying today as I think a lot of good news looks priced in and I don’t see much room to rise from here.

The post Will the BP share price keep rising? appeared first on The Twelfth Magpie.

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• Just how bad could it get for the BP share price?
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• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Ringing endorsement for this penny stock

As deals go, this is top drawer stuff. Today, Seeing Machines announced a global framework agreement with top-tier oil giant Royal Dutch Shell to provide its distraction and fatigue tech — otherwise known as Guardian — to the latter’s fleet as part of its overall risk management plan.

Given that its workforce covers an estimated 500m kilometres every year (and what they are transporting tends to be rather flammable), this agreement makes clear sense from a safety perspective.

Naturally, it will take some time to fully implement this agreement. According to today’s statement, the installation of Seeing Machines’ tech is likely to begin this year. However, the sheer scale of Shell’s operations means the rollout might take “several years“.  

Still, an endorsement from Shell is hugely significant in my eyes. If you have one of the UK’s largest listed companies making it clear how much importance they place on driver safety, I think it’s fair to expect others to follow suit.

Naturally, it’s very easy to become biased on stocks one already owns. However, with the company being the global leader in this space, I do find it hard to be neutral on the outlook for this part of Seeing Machines’ business. 

Great outlook

Of course, today’s agreement is just one reason why I continue to hold the stock. Seeing Machines actually has its fingers in many pies at the moment. And, for me, the Guardian part of the business is actually the least exciting part.

The one that really grabs my attention is the huge earning potential of its automotive division. Back in August, the penny stock reported on the commencement of royalty revenues as over 100,000 vehicles loaded with its driver monitoring system (DMS) tech left showrooms. With the introduction of new legislation likely to boost demand, the company has already identified more than A$900m in potential revenue that it could/will now bid for.

On top of this, Seeing Machines has also been making moves into the aviation sector. This is the beauty of distraction-detecting tech — the sheer number of potential applications is hard to fully comprehend.

Long-term winner?

Naturally, any investment involves risk. Seeing Machines is no exception. Despite having a market cap of around £350m, this AIM-listed business is still unprofitable. This makes it particularly susceptible to general sell-offs. During the last market crash, for example, SEE’s share price fell from 5.5p in January 2020 to just 1.7p in March. It’s now at 9.8p, highlighting the huge volatility penny stock hunters should expect. One also can’t discount the possibility of future cash calls further down the line.

Along with would-be nickel miner Horizonte Minerals, however, Seeing Machines is one of few shares in my portfolio that I consider to be both very risky but also worth holding for the long term.

Time will tell if I’m fantastically right, utterly mistaken, or somewhere in between. For now, I’ll simply conclude that today’s news means I won’t be selling this penny stock anytime soon.  

The post This penny stock just signed a deal with Royal Dutch Shell! appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Seeing Machines Ltd and Horizonte Minerals. The Motley Fool UK owns shares of and has recommended Seeing Machines Ltd. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cheap commodities play

Top-tier mining giant Rio Tinto (LSE: RIO) is scheduled to release an update on operations slap bang in the middle of October. Based on its last statement, I don’t think there’s too much for existing holders to worry about. Back in July, the company announced it had achieved record financial results over the first half of 2021.

Unfortunately, one clear issue with RIO (and the other FTSE 100 miners) is that it has very little control over the price of what it digs up. It’s also susceptible to wider economic concerns. News of a slowdown of growth in China, for example, has contributed to an 11% reduction in the share price over the last month.

Despite this loss of momentum, I must say I’m very tempted to add some RIO to my own portfolio. A P/E of just five looks great value given its rock-solid finances and monster dividend yield. The potential for a commodities supercycle, due to demand for renewable energy sources, is another big attraction.

Trouble at the top

Pharma giant GlaxoSmithKline (LSE: GSK) is another stock that will be put under the market’s microscope next month. It’s down to provide an update on Q3 trading on 27 October. Those already invested will surely be hoping there’s something to take the focus off the ongoing tension between CEO Emma Walmsey and activist investors.

The latest of the latter to get involved is London-based hedge fund Bluebell Capital Partners. It’s pushing for someone with more scientific experience to take the helm after the company spins off its consumer health arm in 2022.

With the share price up only 1% or so year-to-date, you can see why frustration’s growing. And, ironically, the longer GSK trades sideways, the longer investors will refrain from prioritising its stock over others.

Notwithstanding this, I still think the valuation — at 14 times earnings — is appealing. In fact, GSK’s defensive properties could make it a great option if markets lurch south in the near future. Despite confirmation of a dividend cut, shares should also yield 4.2% next year (based on the current share price).

FTSE 100 oil giant

Oil major Royal Dutch Shell (LSE: RDSB) is a third stock I’ll be watching closely, especially after all the fuel-shortage shenanigans we’ve seen recently. Third-quarter numbers are expected a day after those of GSK.

As I type, RDSB shares trade on nine times forecast earnings. That’s not a bargain relative to the industry. FTSE 100 peer BP, for example, trades on a lower multiple. Nevertheless, Shell does look inexpensive compared to the general market. The 3.8% dividend yield is also higher than that of the FTSE 100 (3.5%).

There are risks, of course. The oil price can be notoriously volatile, even though analysts are bullish on demand for the rest of 2021. The switch in focus to producing greener sources of energy won’t come overnight either. Nor will it be cheap to accomplish.

As things stand, I’m content to sit on the sidelines. Considering its ability to move the FTSE 100 however, I’ll be taking a keen interest in next month’s news.

The post 3 cheap FTSE 100 stocks to watch in October appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Let’s look at a few reasons why this might be happening.

FTSE 100: what’s going on?

Perhaps the most prominent of these is news that the Federal Reserve is considering pulling back on its stimulus support for the US economy. It’s not so much that this is a surprise to global markets as it was always on the cards, given rising inflation across the pond. Consumer prices hit a 13-year high in June. 

No, what’s got traders in a twist is how quickly this tapering might happen. Right now, there’s speculation this could occur in the last quarter of this year or the first quarter of 2022.

Some seem to think this may be too soon given that recent data has shown consumers are still behaving cautiously. As always, the markets hate uncertainty and US indices fell yesterday. Seen from this perspective, the FTSE 100 is merely playing catch-up.

Covid-19 concerns

Another reason for the lead index having a rough morning is news of rising Covid-19 infection levels around the world. Aside from the health implications, this has a knock-on effect on other things. 

One example of this is the price of oil. This has been steadily falling for a few days on fears that the Delta variant may put economic activity into reverse and demand for fuel will follow. This is, after all, what happened last year as stockpiles jumped amid widespread lockdowns. 

A reversal in the price of oil is clearly not great news for FTSE 100 giants Royal Dutch Shell and BP. Due to their relative size, they have a bigger impact on the direction of the index than those lower down. 

Ex-dividend day

An additional, a more benign explanation for why the FTSE 100 is struggling relates to a good number of its constituents going ex-dividend. This is when a stock trades without the value of its next dividend payment. In other words, investors who purchased a stake in these companies before today will now receive the next cash payout, while those buying today won’t.

Given that the FTSE 100 remains a great hunting ground for big dividends, it was always possible this could have an impact on today’s performance. The timing just isn’t great.

Should Fools worry?

A sudden drop in the FTSE 100 like we’re experiencing today can test the nerves. It’s never pleasant to see many/all of one’s holdings fall in value.

Personally, I’m not worried. Counter-intuitively, it’s the days where individual stocks that I own are crashing that make me jittery. When pretty much the whole market falls in unison, I can be pretty sure that the underlying businesses that I own haven’t changed all that much.

In spite of today’s tumble, it’s also worth remembering that the FTSE 100 is almost 15% above where it stood in August 2020. 

As a long-term investor, I know that one of the best things to do in times of trouble is to get greedy. So, if I’m going to do anything today, it will be to take another look at my wishlist of UK stocks. 

The post 3 reasons why the FTSE 100 is crashing appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Many long-term investors in ITM Power (LSE: ITM) will have done incredibly well. Those who had the foresight to buy the shares almost five years ago and sell early in 2021 would be sitting on gains of around 2,100%. Since then, the tide has turned. The ITM share price is now roughly 42% below where it stood at the end of January. Will June’s trading update change things? And should I take advantage of the price drop?

ITM: The story so far

Let’s recap. ITM is a highly promising hydrogen energy storage and clean fuel company. Put simply, analysts believe the element — and the AIM-listed business — could play a huge role in decarbonisation (returning levels of CO2 in the atmosphere to more natural levels).

Back in 2015, ITM signed an agreement with Shell for hydrogen refuelling stations. A couple of years ago, this was extended to include forms of transport such as buses, trains and ships. In 2019, the company also announced a joint-venture with engineer Linde to deliver renewable hydrogen to industrial projects across the globe. 

In more recent news, ITM revealed that it had signed a collaboration agreement with (and received strategic investment from) Italian energy infrastructure firm Snam. Other developments include the opening of a gigafactory in Sheffield.

The ITM share price: where next?

The quick answer to where the share price is going is that no one knows for sure. A slightly more involved response is that it really depends on whether the company meets, beats or falls short of investors’ expectations on 10 June. Despite recent operational progress, the last of these is clearly possible. 

Back in January, ITM reported results for the six months to the end of October. For me, two numbers stood out. The first was a 92% drop in revenue to just £200,000, partly due to Covid-19 disruption. The second was a 28% rise in the adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) loss to £10.4m. Despite recent investment helping accelerate the company’s growth strategy, things could get worse before they get better.

Even if ITM shareholders accept this, more general market moves could still have a bearing. Right now, investors are shunning growth for value. This could prove problematic for the ITM share price’s near-term performance.  So, even better-than-expected news in June (thanks to the lifting of restrictions) may not change the stock’s trajectory. The company’s low free float — the number of shares available to trade — could also amplify any fall. Of course, the opposite is also true.

Not for me….yet

The potential for hydrogen-focused companies is massive. Unsurprisingly, ITM thinks its “rapidly developing backlog and tender pipeline” is evidence of its “world class” offering. 

I’m keeping my feet on the ground for now. Let’s not forget that the advent of the internet saw many companies coming to the market only to quickly disappear following the dotcom bust. A similar scenario may play out here. ITM could well prove to be one of the victors, but there can be no guarantee. When hype meets reality, the latter wins eventually.

Taking my own risk level into account, buying a clean energy fund remains the best strategy for me. This way, my money is spread across many companies rather than just one. Options here include the Invesco Global Clean Energy ETF or my favourite, iShares Global Clean Energy ETF.

The post Where will the ITM Power share price go in June? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in iShares Global Clean Energy ETF. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why it pays to go small

There are several reasons why smaller companies have historically outperformed their larger market peers.

First, high-quality small-caps can grow revenues and profits at a faster clip. This makes it easier for a company with a market-cap of, say £100m, to double in value. A company like FTSE 100 oil giant Royal Dutch Shell however, will take far longer to double, if it happens at all.  

Second, the vast majority of analysts in the City spend their time pouring over the latest figures from the best-known companies on the London Stock Exchange. As a consequence, many promising, junior UK shares rarely appear on their radars. This is clearly a good thing for the nimble private investor since these stocks are more likely to be mispriced. 

Third, professional fund managers are often prevented from buying these companies even if they’re aware of how good they are. This underlines the benefits of learning to manage one’s own investments, assuming the time and inclination. 

Be warned

Now, let me be clear. Small-cap investing isn’t for everyone. In fact, there are reasons why some people might want to steer clear entirely. 

First, share prices can be extremely volatile. This is usually because these stocks tend to be harder to buy or sell quickly. That’s not necessarily a problem when markets are behaving themselves. However, it’s a potential disaster in the event of a market crash. Last year showed it’s possible to lose a great deal of money (at least on paper) in a very short space of time.

This brings me to my second point. To be more confident about getting a great return from small-cap UK shares, patience is required. Again, this might not be a problem for those with decades of their stock market journey left. However, older investors may not be quite so flexible. This is particularly the case if they’re approaching retirement, or have already quit the rat race. 

Does this mean it’s impossible to make good money without taking on insane levels of risk? Actually, no. There are ways of mitigating this.

Ways to reduce risk

Aside from ensuring I’m not overly invested in any one company and being extremely wary of ‘penny’ stocks, I also own a number of actively managed funds investing in this space. While the fees are unquestionably high, I believe the eventual return should be worth the expense. 

As an example, I’m currently invested in the Liontrust UK Smaller Companies Fund. Managed by Anthony Cross and Julian Fosh, this fund has returned over 1,600% since 1998. Seen from this perspective, multiplying the portion of my capital invested in small-cap UK shares 20-fold in the next 30 years (my personal investing horizon) might actually be possible! 

Sure, 2020 showed that the path to riches certainly won’t be without a few setbacks. However, so long as I can steer clear of meddling with my portfolio too often,  I’m confident the rewards will be worth it. 

The post £1,000 to invest? Here’s how I’d look to make £20,000 using UK shares appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Liontrust UK Smaller Companies Fund. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m looking at how Foolish investors might position themselves to reap the rewards.

Renewable energy goes mainstream

Thanks to concerns over global warming, the drive towards greener sources of energy has increased exponentially over the last few years. The pace of demand is only likely to accelerate further following Joe Biden’s recent US election win. After all, the Democrat made a commitment to clean energy a huge part of his campaign to secure the White House.

In sharp contrast to all this, oil stocks such as BP and Royal Dutch Shell have been out of favour for most of 2020 as a result of the pandemic. The FTSE 100 tankers have seen their share prices pummeled as a consequence of the huge reduction in travel hitting demand for oil. Junior oil stocks have fared even worse.

Now, I don’t doubt we could see the price of the slippery stuff recover strongly as some form of normality returns in 2021 and demand increases. Even so, I can’t help but think investors will miss out on bigger gains by remaining loyal to oil stocks. As much as BP and Shell are trying to improve their green credentials by reducing their carbon footprints, no one should assume this move will be easy or cheap.

No, I’m looking for companies that are already making strides in the renewable energy space. 

Tap into the trend

UK retail investors certainly aren’t short of options when it comes to playing the theme.

Naturally, they could buy shares in individual companies. FTSE 100 member and catalyst system supplier Johnson Matthey is arguably one example. It has an interest in battery materials and hydrogen-related technology. Utility firm SSE plans to triple its renewable energy generation within the next 10 years. Lower down the market, there’s fuel-cell tech business Ceres Power Holdings and clean-fuel firm ITM Power. 

An alternative to the above would be to buy an investment trust focused on this space. FTSE 250-listed Renewables Infrastructure Group owns wind and solar farms, as does Greencoat Renewables.

Cheap exposure

My option of choice however, is the geographically-diversified iShares Global Clean Energy UCITS ETF.

With a cheap ongoing charge relative to ‘active’ equivalents (0.65%), this exchange-traded fund has holdings in companies such as US hot stock Plug Power, home energy storage firm Enphase Energy and New Zealand electricity generator Meridian Energy.

A concentrated portfolio of 31 holdings could mean a volatile ride for holders. But owning this fund over stocks in specific renewable energy companies whose technologies aren’t necessarily proven feels far less risky. That said, returns should be turbocharged if this relatively small portfolio performs. Given the nailed-on industry tailwinds, I think the odds are in my favour.

As one might expect, the recent performance of the fund has been superb. In the year to date, iShares Global Clean Energy has almost doubled in value! I’m not expecting gains like this too often but I can’t see an end to this purple patch just yet.

I’m backing up the truck whenever I can.

The post Forget oil shares. I think renewable energy stocks could be millionaire-makers! appeared first on The Twelfth Magpie.

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Paul Summers owns shares in iShares Global Clean Energy UCITS ETF. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With its valuation now at its lowest level for over 25 years, is this fallen giant too cheap to ignore? I think it depends greatly on how patient prospective investors are prepared to be.

Shell shares beat expectations

Like it’s similarly-battered FTSE 100 peer BP, Shell shares have been deeply affected by the plunging oil price in 2020. Billions of dollars of assets have needed to be written off by the company. 

Today however, Shell surprised on the upside. Adjusted earnings came in at $955m for Q3. While nowhere near the $4.77bn achieved over the same period in 2019, this is still better than the $638m in Q2. It’s also above what the market was expecting. 

Shell shares’ tough outlook

As encouraging as today’s news is, it seems fair to say that Shell still faces an upward struggle. Indeed, things could actually get even worse before they get better.

The ongoing pandemic is clearly the biggest near-term issue Shell shares face. The recent rise in infections around the world (particularly in Europe) has forced governments to re-introduce lockdowns. Although these new restrictions aren’t expected to last as long this time, they will still have an impact on Shell’s business. Put simply, fewer vehicles on the road leads to lower fuel sales and lower demand for oil. This means lower profits at Shell. 

Second, there’s the push away from fossil fuels and towards greener forms of energy. For its part, Shell is planning to focus on commercialising hydrogen and biofuels as well as energy for electric vehicles. It aims to be a “net-zero emissions energy business by 2050 or sooner.“

Nevertheless, turning this £70bn tanker around will cost a lot of money and Shell will need to be ruthless. In September, it announced that up to 9,000 jobs would be cut to make $2bn of savings. I wouldn’t bet against more being let go in the future.

Dividend cut

Up until recently, Shell shares presented as a solid pick for income seekers. Not cutting your dividend since the Second World War has a habit of doing that.  

Since the arrival of Covid-19 however, Shell has been forced to reassess its priorities. Quarterly payouts have been severely chopped. Today’s $0.17 per share compares unfavourably with the $0.47 per share awarded this time last year even if it does represent a 4% increase on that returned for Q2.

Having approved a new ‘cash allocation framework’, Shell now intends to distribute 20-30% of its cash flow from operations to shareholders once it’s brought its debt down to $65bn from $73.5bn. So, dividends could keep rising from here but I don’t think anyone should underestimate the challenges ahead. 

Bottom line

With a tough outlook, Shell shares don’t feel like a compelling buy at the current time. Notwithstanding the fact that (like all stocks) it could rally like the clappers in the event of a vaccine breakthrough, I’d be inclined to look elsewhere in the FTSE 100 for my income fix. Those looking purely for big capital gains could be in for a long wait.

Royal Dutch Shell shares look cheap and yield almost 7%, but today’s gains may prove temporary.

The post Are Royal Dutch Shell shares now too cheap to ignore? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With this in mind, how might three of the FTSE 100‘s biggest companies — Tesco (LSE: TSCO), Unilever (LSE: ULVR), and Royal Dutch Shell (LSE: RDSB) — fare when they report on trading? 

FTSE 100 beater

Tesco is set to report interim results on 7 October. Considering the impact of the coronavirus, you might think it and other supermarkets would have fared particularly well over the last six months. After all, everyone still needs to eat.

Even so, shares in the market leader haven’t exactly been on fire recently. This may be partly due to investors realising that rising demand for home delivery can also dramatically increase costs.

Aside from this, the departure of highly-rated CEO Dave Lewis may be weighing on sentiment. News that budget supermarket Aldi will be expanding its click and collect service may also have raised concerns that it will eventually move into the home delivery game.

If you give credence to current estimates, Tesco trades on 16 times forecast earnings. Although this valuation isn’t unreasonable, I’d be surprised if we saw a huge move upwards next month, given that the share price has still fared better than the FTSE 100 as a whole.  

Quality stock

Also reporting next month (22 October) is Unilever. Owner of hugely popular brands such as Marmite and Domestos, the FTSE 100 consumer goods giant might not have to endure the same competition faced by Tesco. Then again, a tightening of belts in light of the recession could still trip up trading if shoppers move to cheaper alternatives.

Notwithstanding, I remain positive on Unilever as a long-term holding. While sales may ebb and flow, the company consistently generates great operating margins and returns on capital employed. These are the sort of litmus tests to use when looking for quality shares. Just ask UK fund managers such as Terry Smith and Nick Train.

Unilever’s share price is now up almost 30% from mid-March. A valuation of 23 times forecast earnings, however, suggests investors shouldn’t expect too much in October. That said, I’m wondering if we might see a recovery in sales of personal hygiene products following the end of lockdown.

Contrarian pick? 

Oil major Royal Dutch Shell is the last of today’s FTSE 100 trio to report next month. Numbers for its third quarter are due to be released on 29 October. Having more than halved in 2020, it’s also the stock most likely to appeal to contrarians, I’d think.

It’s been almost six months since oil prices went negative for the first time in history due to a glut of the black stuff, partly as a result of fewer people being on the roads. In response, the FTSE 100 giant cut its dividend for the first time since the Second World War. It also accelerated its shift to renewables, biofuels, and hydrogen. 

Of course, news of a vaccine and a reduction in supply could see Shell soar. Analysts currently have the shares trading on 10 times forecast FY21 earnings.  

Nevertheless, anyone ignoring the current coronavirus-related uncertainty does so at their peril. As more local lockdowns are announced, I’m inclined to think the shares will stay depressed for a while.

The post FTSE 100 stocks Tesco, Unilever and Shell all report in October. Where next for their share prices? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Royal Dutch Shell

Second-quarter earnings for the oil major were understandably very poor. In fact, after an impairment charge of $16.8bn, net income came to a loss of $18.1bn. On the face of it, these earnings paint a very gloomy picture. As such, it’s clear why the Shell share price has fallen nearly 20% since.

Nevertheless, upon further inspection of the earnings, there are a number of positives to take away. For example, on an adjusted earnings basis, the oil stock actually made $638m. While adjusted earnings exclude one-off items and can potentially just ignore all the ‘bad stuff’, it’s still a great sign to see the company making a good profit in this challenging quarter. It also had positive cash flow of $243m. Although this does not cover the dividend as yet, I’m still encouraged that it’s in positive territory. This was mainly the result of the company reducing capital expenditures.

Consequently, with average oil prices under $30 for the second quarter, I feel the worst may be over for Shell. With third-quarter results due at the end of October, a significant improvement could therefore be met with a sharp increase in the share price.

BP

After both cutting its dividend and announcing further investment into renewable energy, BP shares have fallen 13%. Of course, this does reflect the fact that the oil stock made an underlying loss of $6.7bn.

Even so, the news has not been all negative for BP. For example, the firm has managed to strengthen its finances by issuing $11.9bn in hybrid bonds. Net debt has also been reduced by over $10bn since the first quarter, and this has subsequently seen gearing reduce by 3% to 33%. This contrasts with Shell, where net debt increased by $3bn following the first quarter.

Despite the dividend cut, BP also has a greater dividend yield than Shell. In fact, the dividend is currently yielding around 6%, and there is no indication of a further cut. Instead, management has stated that once BP’s balance sheet has been deleveraged, it can start to return more money to shareholders through share buybacks.

Which oil stock would I buy?

Sitting at prices of 1,085p and 260p respectively, both of these oil stocks look very good value. As a result, I’ve actually invested in both Shell and BP, in anticipation of an oil recovery. If I were forced to choose just one however, I believe that BP offers the most upside potential. Although its transition to greener energy could hit profits in the short term, I think its long-term strategy should help its recovery prospects.

The post Royal Dutch Shell vs BP: which oil stock would I buy now? appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in Royal Dutch Shell and BP. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.