Shell (LSE: RDSB) shares have struggled this year. Year-to-date the stock has fallen a staggering 44%! What’s more, over the past 12 months, shares in the oil giant are off by 51%.
It’s easy to see why investor sentiment towards Shell shares has collapsed over the past year. At the peak of the coronavirus crisis, global oil demand was down by around 20% year-on-year. This had a knock-on effect on global hydrocarbon prices. Prices collapsed so fast at one point the price of oil fell into negative territory.
To cope with this turbulence, Shell’s management decided to cut the company’s dividend. The group also slashed capital spending and is planning to cut costs over the next few months.
Shell’s decision to cut its dividend for the first time since World War II, shows just how badly the crisis has impacted the company.
And today the group has announced yet another round of bad news. It has declared that it is planning to write down the value of its assets by as much as $22bn to reflect lower oil and gas prices for the next few years.
Shell shares on offer
However, despite all of the above, Shell shares look cheap at current levels. The stock is trading at one of the lowest levels in recent memory.
What’s more, even though the company has recently slashed its annual dividend payout, the stock is still set to yield 6.7% for 2020 and 2021. This looks extremely attractive at a time when so many other FTSE 100 companies have eliminated their dividends altogether.
These figures suggest that Shell shares offer a margin of safety at current levels. As such, now may be a good time to snap up the stock while it looks cheap relative to history.
Clearly, the company is going to face further headwinds in the near term. The coronavirus crisis continues to rumble on in the background, and this may impact the demand for oil and gas for many years to come. Nonetheless, to some extent, this lower demand is already reflected in the Shell share price.
The group has already decided to preemptively cut its dividend and write down the value of its assets. So, the company may now be past the worst.
And over the long term, Shell is well-positioned to capitalise on the global economic recovery.
Green energy
Over the past few years, the organisation has been repositioning itself, away from oil and gas towards renewable energy and electricity supply. These efforts should help the business prosper as the world moves away from dirty hydrocarbon products, towards green power and technologies.
Shell is one of the few large energy companies to have made such a dramatic change to its operations, which suggests the company’s services could be in demand over the next few years. This only supports the investment case for Shell shares at the current depressed levels.
