4. Shell (NYSE:SHEL)
Average Upside Potential: 24.36%
Market Cap as of September 26: $211.73 billion
Number of Hedge Fund Holders: 49
Shell (NYSE:SHEL) is a British multinational oil and gas company. It primarily focuses on exploring, producing, and refining crude oil and natural gas, also operating in the areas of renewable energy and chemicals. It is known for its extensive global operations, commitment to providing energy solutions, and efforts to reduce its environmental impact. During the first half of 2024, 92% of its exploration, upstream, and renewable revenue came from natural gas or renewable sources.
The company is investing $10 to $15 billion in low-carbon energy solutions between 2023 and 2025 to transition away from fossil fuels and focus on renewable energy sources like wind, solar, and hydrogen. Management believes LNG will play a key role in the energy transition and plans to expand its LNG business by 20-30%, aiming to increase LNG volumes by 15-25% by 2030. It’s acquiring Pavilion Energy Pte. Ltd., a Singapore-based global LNG trading company for ~$1.2 billion, which is expected to be completed by Q1 2025.
It has invested in technology for exploration purposes, using geophysical data to develop advanced methods for oil and gas discovery. The merger with BG Group provided a significant competitive advantage, particularly in Brazil and Australia. Shell (NYSE:SHEL) expects to increase oil production by ~500,000 barrels per day by 2025.
In Q2 2024, it made $74.46 billion in revenue, although this was a drop of 0.15% from the year-ago period, due to lower oil prices, decreased production levels, and market volatility. Its largest business is its marketing division which includes revenue from selling wholesale commercial fuels, earning the firm $62 billion in sales in H1, which was 42% of the firm’s overall sales.
While its marketing division remains a significant contributor, the company’s pivot to natural gas and LNG positions it well for the future. Its investment in clean energy demonstrates its commitment to sustainability and innovation, again positioning it for long-term growth.
Third Point Management made the following comment about Shell plc (NYSE:SHEL) in its second quarter 2023 investor letter:
“We initiated a position in Shell plc (NYSE:SHEL) in the summer of 2021 and highlighted the company’s significant discount to intrinsic value as well as to US-listed peers after decades of poor performance. While shares have performed well since we initiated the investment, the company still trades at staggering discount to intrinsic value and represents a compelling investment at current levels. We initially argued (and still believe) that the fastest path to improved performance and better valuation would be a separation of Shell’s business units to better attract shareholders and improve accountability, the latter of which was essential when the company was in the hands of executives who had demonstrated virtually no focus on shareholder value creation.
The most important change at Shell over the past two years has been the upgrade in the management team, with the appointments of Wael Sawan as CEO and Sinead Gorman as CFO. They have demonstrated an unwavering commitment to shareholder value, capital discipline, and improved returns. At their recent analyst day, Mr. Sawan stated “underpinning all that we do will be a ruthless focus on performance, discipline, and simplification.” It was the third time they used the term “ruthless” in their presentation, sending a strong message to shareholders…” (Click here to read the full text)
