We recently published a list of 10 Best Foreign Stocks To Buy Now. In this article, we are going to take a look at where Shell plc (NYSE:SHEL) stands against the other best foreign stocks to buy now.
The close of 2024 is resulting in a much needed paradigm shift for US and global equities. Ever since the coronavirus pandemic disrupted our way of living in 2020, investors have had to deal with one setback or another. While the immediate effect of the pandemic equities saw technology stocks soar, other sectors, such as energy and travel didn’t. Then, inflation rose in 2022 forcing central banks worldwide to rapidly hike interest rates, which naturally made equities much less attractive than before.
Since then, rates have been high in Europe and the US as well as in the developing world. However, with the European Central Bank’s (ECB) and Bank of England’s (BOE) latest rate cut decision, things appear to be changing. The ECB got the ball rolling in June after it cut interest rates by 25 basis points and then followed up with another 25 point cut in September. These decisions have been influenced to some extent by economic growth concerns. During the press conference after she announced the rate cuts, ECB President Christine Lagarde commented that while her organization had initially expected European economic growth to pick up, this hadn’t been the case.
As per Lagarde, “We have revised downwards the outlook for growth, because the consumption that we had anticipated for now, essentially, because net income has begun to increase, inflation has gone down significantly and we were expecting consumption to pick up, has not picked up. And I think that we will be looking at that carefully when we produce our next growth and GDP numbers.” During Q2 2024, the EU and broader Euro area’s GDP grew sequentially by 0.3%, which was similar to the Q1 figures. On an annual basis, the EU’s GDP marked a 0.8% growth while the Euro area’s growth was 0.6%. Lagarde’s comments were accompanied by the ECB’s updated growth estimates for 2024, 2025, and 2026. While it had expected these to sit at 0.9%, 1.4%, and 1.6%, respectively, the updated estimates reduced all of these by 0.1 percentage point.
With the EU’s economic performance, one country’s under performance is relevant for the broader area as well as an analysis of foreign or exUSA economies. This country is Europe’s largest economy, Germany. The German economy was 2023’s worst performer among major economies as it contracted by 0.3%. In Q2, the GDP contracted by 0.1% sequentially and missed analyst estimates of 0.1%. This slowdown came at a time when inflation jumped by 2.6% in July and accelerated by 0.1 percentage point over June. The economic uncertainty has also affected German investors, as data from the ZEW economic research institute’s economic sentiment index shows that the index fell to a whopping 3.6 points from an earlier 19.2 points. Analysts had expected it to sit at 17 points. Additionally, investor perceptions of the economy fell to levels last seen just as the coronavirus had started to wreak havoc in May 2020 and sat at -84.5.
Germany is struggling because the aftermath of the Russian invasion of Ukraine has cut its supply of cheap Russian gas. While this has increased costs, on the demand side, Germany is suffering from a weak Chinese economy. Data from the Federal Statistical Office shows that Germany’s exports to China in May sat at €7.5 billion for a 14% annual drop. Between January to May, the exports were €40.3 billion, for a 10%+ drop over 2022. With German firms such as LVMH experiencing a 14% Chinese sales drop in Q2 and Swatch witnessing a 30% drop in H1, it’s clear that Chinese consumers are in no mood for discretionary spending.
This has also led to Goldman recommending that investors sell European stocks with Chinese exposure as it is worried about its basket of European stocks. As per the bank, while “a great deal of earnings downgrades have already occurred year-to-date for our luxury basket, we worry that more could take place.” It adds that “Also, the valuation premium of the basket has deflated, but remains on the high side of its history.”
Pessimism about China is evident in the data as well. During Q2, the economy grew by 4.7%, with retail sales whimpering through a 2% growth rate. This was the slowest since December 2022, when the Zero COVID lock downs were still making their impact across the country. In the aftermath of the disappointing data from the world’s second largest economy, Goldman and Citi, which had earlier expected the Chinese economy to grow by 4.9% and 4.8%, slashed their estimates to 4.7%. Goldman commented “We believe the risk that China will miss the ‘around 5%’ full-year GDP growth target is on the rise, and thus the urgency for more demand-side easing measures is also increasing,” while Citi stated, “We believe fiscal policy needs to step up to so as to break the austerity trap and timely deploy growth support.”
Yet, while Germany and China have struggled, the world’s largest economy America has thrived. US GDP grew by 3.1% annually in Q2, lending credence to the argument of American exceptionalism. On a quarterly basis, it was up by 0.7%, despite the fact that interest rates remain at a 24 year high. This growth has created ample room for the Federal Reserve to keep rates high, and now, most expect that an interest rate cut is incoming. Due to America’s dominant role in global economic affairs, the Fed’s decisions have a global impact. For European stocks, it meant that the day before the rate cut decision, the index tracking Europe’s top 600 stocks gained 0.5% while the British stock market jumped by 0.7%.
Our Methodology
To make our list of the best foreign stocks to buy, we ranked the 40 most valuable exUS stocks in terms of market capitalization by the number of hedge funds that had bought their shares in Q2 2024. Out of these, the top stocks were chosen. Care was taken to ensure that stocks that were founded in America but are headquartered in Ireland or other jurisdictions were eliminated.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A gas refinery lit up against the night sky, showing the scale of the company’s petrochemical operations.
Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders In Q2 2024: 49
Shell plc (NYSE:SHEL) is one of the biggest oil companies in the world. It commands an 11.6% share of the global oil market, which provides the firm with a robust supply chain and logistics infrastructure which is key for any oil company and requires decades of investment. Shell plc (NYSE:SHEL)’s dependence on oil also means that it performs well when economic output is high and global economies are growing. Consequently, while the American growth engine continues to tick, slowness in Europe and China could create headwinds for the company. However, Shell plc (NYSE:SHEL) made key changes to its strategy in 2023 which should help its hypothesis in the short to medium term. The firm plans to maintain its current oil production until 2030, scrapping an earlier plan to reduce it by 55%. Shell plc (NYSE:SHEL) is also aiming to invest as much as $15 billion in clean energy products, including EV infrastructure, by 2025. This could open it up to new revenue streams, and allow it to benefit from government initiatives such as the Inflation Reduction Act in the US.
Shell plc (NYSE:SHEL)’s management shared important details about its carbon capture and storage strategy during the Q2 2024 earnings call:
“Firstly to say, we have talked about $10 billion to $15 billion of investment between 2023 and 2025 in the low carbon space. We have also said that these are nascent businesses, suspending that amount of money, we have to really be conscious of the business cases that we are driving. And critically, I would say, we are doing this for shareholder value creation. So we have to really be clear that we have line of sight to be able to actually get accretive value as a result of this.
Now we are learning through the process. I will admit to you that there are certain things which we have gotten into where we said, let’s pause come out of such as, for example, our Power Home business. At one point, we got out of it, hydrogen into mobility. We’ve gotten out of it. So we’re really trying to make sure that we lean in, we learn and then we focus. What do we see that creates the most opportunities right now, biofuels, as I’ve talked about earlier, my convictions, including, by the way, renewable natural gas such as our Nature Energy platform. Green hydrogen has to come in within the right context of regulatory support. I’ll leave Sinead to unpack that a bit more. We do like the nexus of power trading, including with flex generations of battery storage, combined cycle gas turbines, et cetera.
Those are areas where we are continuing to lean in because we are now seeing that we can create value out of them. Where does CCS fit into that? CCS, we think in the — for the coming years is a critical part of our own decarbonization journey to get to the 50% reduction in Scope 1 and 2. The Polaris one, which was in Canada, is linked to our Scotford asset, where we expect to capture some 650,000 tonnes per year from that facility. And the reason we like that is we’ve done it in Canada before. We’ve done it with Quest. We’ve done it for that facility. So it’s derisked. We know what we’re doing in that space. And the business model is one where the credits in Canada allow us to be able to create value from that investment. So it’s very much the ability to be able to monetize some of those opportunities and to sell the products, the low carbon products to our customers at a premium is what we go after.”
Overall SHEL ranks 9th on our list of best foreign stocks to buy now. While we acknowledge the potential of SHEL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SHEL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
