Sunday, February 15, 2004
I've been much heartened in the last three weeks or so with the progress of the stock market in the large. It's gone nowhere. That's a positive, as most shares short-term fortunes are tied to people's attitudes to the risks involved in equity investing (traditionally economic outlook such as crude oil prices, exchange and interest rates), any significant advances in the indices are naturally accompanied by price rises amongst individual shares. If shares aren't rising it is likely some will be approaching attractive, undemanding valuations, leaving buying opportunities. The FTSE100 index has barely progressed in 2004 and there have been some significant declines amongst the larger stocks, most notably Shell, the oil co.
Shell is a massive business that again, is going nowhere. As long as there is oil to be dug up on earth Shell will be doing so and profitably too. The share price took quite a substantial hit recently as the company was forced to reclassify almost 20% of it's reserves from `proven' to `probable'.
More jargon. Essentially, Shell had been claiming they own all this oil, ready to be dug up and bottled and taken to market but they have recently fallen foul of an accounting technicality enforced by the US standards authorities. Shell remains an incredibly strong company. Those in the know are confident that these degraded reserves will indeed go on to produce revenues for the company. It looks like a classic case of an over-reaction, the shares are down something like 15% since the news and are now surrounded with much negative sentiment, most of it concerning the institutions perceptions of the management. When the bears attempts at justifying a lower price centre around something a nebulous as the City's attitudes to people they have never worked with, alarm bells should start ringing: the stock is approaching it's nadir.
So, Shell is cheap at Friday's close of 350p and so is Tate and Lyle at 275p. My oil holding, Dana is cheap too but I've got enough of those already (at an even cheaper price than today's). I'd be a buyer of Shell at ten times earnings, that's 330p. We'll see in the coming weeks if I'll be getting my chance.
The Artful Dodger
Shell is a massive business that again, is going nowhere. As long as there is oil to be dug up on earth Shell will be doing so and profitably too. The share price took quite a substantial hit recently as the company was forced to reclassify almost 20% of it's reserves from `proven' to `probable'.
More jargon. Essentially, Shell had been claiming they own all this oil, ready to be dug up and bottled and taken to market but they have recently fallen foul of an accounting technicality enforced by the US standards authorities. Shell remains an incredibly strong company. Those in the know are confident that these degraded reserves will indeed go on to produce revenues for the company. It looks like a classic case of an over-reaction, the shares are down something like 15% since the news and are now surrounded with much negative sentiment, most of it concerning the institutions perceptions of the management. When the bears attempts at justifying a lower price centre around something a nebulous as the City's attitudes to people they have never worked with, alarm bells should start ringing: the stock is approaching it's nadir.
So, Shell is cheap at Friday's close of 350p and so is Tate and Lyle at 275p. My oil holding, Dana is cheap too but I've got enough of those already (at an even cheaper price than today's). I'd be a buyer of Shell at ten times earnings, that's 330p. We'll see in the coming weeks if I'll be getting my chance.
The Artful Dodger
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