The disconnect is even more striking, given the energy giant’s huge free‑cash‑flow generation, disciplined capital spending and ongoing share buybacks that steadily lift per‑share value.

So, what sort of gains could investors be looking at here?

How wide is the valuation gap?

The massive gap between Shell’s price and its fair value is not unusual in the stock market. The two measures often diverge, as they are driven by very different factors.

The price of a share is simply the outcome of short-term trading — the level at which market participants are willing to deal. But its value is rooted in the fundamentals of the business behind it.

For savvy, long-term investors, that gap is crucial. History shows that prices usually gravitate towards fair value over time, making the difference between the two an important driver of long-term gains.

Professional investors often rely on discounted cash flow (DCF) analysis to cut through the market noise and estimate what a stock is genuinely worth. The method projects future cash flows and discounts them back to today. The less certain those projections, the higher the discount applied to them.

Because analysts use different assumptions, their DCF valuations naturally diverge. Using my own inputs, including a 7.2% discount rate, Shell looks 63% undervalued at its current £33.14 price.

That places fair value around £89.57 — more than twice the current level.

Consequently, if markets continue drifting toward fair value, this could be an exceptional opportunity if those DCF assumptions prove correct.

How does growth momentum look?

The key catalyst to move price to fair value over time is sustained earnings growth. A risk for Shell is any sharp downturn in oil and liquefied natural gas (LNG) prices. It could quickly feed through to lower cash generation and slower earnings momentum. Another would be any substantial rise in capital‑investment demands for its energy transition businesses. This might squeeze free cash flow and delay the pace of per‑share value growth.

Nonetheless, analysts forecast Shell’s earnings will increase by an average of 6.4% a year to end‑2028, at a minimum. Its latest (Q4 2025) results showed adjusted earnings of $3.3bn (£2.4bn), supported by strong operational performance in Upstream and Integrated Gas in a lower‑price environment.

Cash flow from operations came in at a strong $9.4bn, reflecting resilient cash generation across the portfolio. Full‑year free cash flow of $26.1bn continued to fund dividends and buybacks while maintaining a robust balance sheet. This highlighted the benefits of Shell’s $5.1bn structural cost‑reduction programme and disciplined capital allocation.

Together, I think these elements should continue to support solid earnings growth ahead.

My investment view

Shell stands out as a stock that combines deep undervaluation with clear, ongoing drivers of long‑term value creation. These are strong cash generation, disciplined capital spending and meaningful cost efficiencies, which give investors a solid foundation for potential gains.

For long‑term investors willing to look past short‑term volatility, Shell’s current valuation makes it a worthy candidate for serious consideration.

And I will certainly be adding to my existing holding at the earliest opportunity.

The post Down 8%, is Shell’s share price a steal now around £33? appeared first on The Twelfth Magpie.

The move ends nearly 60 years of membership, and was described by one analyst as “the beginning of the end of Opec“. The UAE is the third-largest producer in the group of 12 countries and will exit the group on 1 May.

So what does it mean for British energy shares — and should investors be concerned?

Volatility, as usual

The UAE’s exit may be bad news for Opec, but it’s not an immediate disaster for British energy investors. For FTSE energy shares such as BP (LSE: BP) and Shell (LSE: SHEL), the key issue is still the oil price.

A weaker Opec will probably lead to supply problems, which ultimately means volatility and higher crude oil prices. That’s not an ideal situation (as everything gets more expensive), but it can mean more cash flows for oil producers while prices stay high.

Essentionally, for energy stock investors, the gains could offset higher expenses elsewhere.

Should UK investors do anything?

BP and Shell tend to benefit when crude prices rise, with Reuters recently highlighting that BP’s results are particularly sensitive to oil-price volatility. Shell’s profits similarly move with weaker or stronger oil and gas prices but to a lesser extent.

That means the UAE’s departure could be mildly positive for earnings if it helps keep oil elevated. But it could also raise the risk of sharper price swings that make forecasts less reliable.

For UK investors, this is more a market structure story than a direct company-specific shock. BP and Shell are both diversified global businesses, with shares are driven by a number of factors aside from Opec membership, including:

• Oil prices.
• Gas prices.
• Trading performance.
• Share buybacks.
• Capital returns.

In the greater scheme of things, this isn’t a huge development. UK energy shares have already suffered volatility from this year, rising when crude jumps and weakening when higher oil prices drive inflation worries.

So what’s the likely impact?

In the near term, the UAE leaving Opec could be:

• Positive for BP and Shell if traders price in tighter supply and higher crude prices.
• Negative for consumer-facing parts of the FTSE if higher energy costs feed inflation and pressure sentiment.
• Neutral overall if the market decides the move simply adds volatility without changing actual supply that much.

In reality, the foundational picture remains the same, with the key risk being disruption at the Strait of Hormuz. To that end, performance will depend on how each individual company meets the challenge.

BP has already boasted about exceptional trading conditions, while Shell has kept buybacks and is still shaping its portfolio through deals.

The key takeaway?

Overall, I don’t see any reasons for investors to be too concerned. The UAE’s exit probably makes the oil market more unpredictable, and that can cut both ways for UK energy shares.

It may lift earnings while prices are strong, but it also increases volatility risk and valuation noise. So for long-term investors, I’d say it’s sensible to focus on balance sheet strength, dividend cover, buybacks and oil-price sensitivity.

The Opec story might make for sensational headlines but it’s certainly no reason to panic.

The post How should FTSE 100 energy investors react to the UAE quitting Opec? appeared first on The Twelfth Magpie.

As a rule, a rising oil price is good for energy stocks. At the start of the crisis, Brent crude traded at just over $60. Today, it’s at $114. If the war drags on, analysts say it could top $120. So how have BP and Shell shares responded?

Since the war began on 28 February, the BP share price is up around 20%. Shell is more sluggish, up a modest 7%. Given that we’re supposedly facing the biggest energy supply shock in history, I expected better. Here’s what I think is going on.

Why aren’t these FTSE 100 stocks doing even better?

First, the higher oil price hasn’t shown up in profits yet. BP reported yesterday, but its Q1 results ran to 31 March, so they only caught the early stage of the spike. Second, investors have broadly accepted Donald Trump’s assurances that the war is under control. Nobody wants to go big on BP and Shell, only for the Strait of Hormuz to reopen next day. Their shares will plunge as a result.

There’s a longer-term worry. The oil shock might ultimately rebound on Big Oil. It could trigger more windfall taxes, and persuade import-dependent countries to accelerate their switch to renewables. Nobody is taking anything for granted. Yet one thing is clear. BP and Shell have been terrific investments lately.

Over the last 12 months, their shares are up 60% and 34%, respectively. If an investor had split a £20,000 Stocks and Shares ISA equally between them one year ago, their BP stake would be worth £16,000 and Shell £13,400. But that’s not all they’d have.

BP has a trailing yield of 4.25%, with Shell’s at 3.25%. That lifts their total returns to roughly £16,425 and £13,725, respectively. In total, the two energy giants have turned a £20,000 ISA investment into £30,150, in just one year. That shows the supreme wealth-building power of shares. But can it continue?

They’re risky, but are they rewarding?

Given today’s high oil price, there’s a good chance of more rewards. Yesterday (28 April), BP said underlying replacement cost profit more than doubled from $1.5bn to $3.2bn in Q1, boosted by its busy trading division. Yet there are still challenges. Net debt rose by $3.1bn to $25.3bn, the board said, “primarily driven by lower operating cash flow”. Shell’s debt is higher still, climbing $6.9bn in 2025 to $45.7bn. However, it’s the bigger company, with a market cap of £184bn versus £83bn.

BP has been the messier story, lurching into renewables then back out again, with boardroom issues along the way. Its shares trailed Shell for years but are now playing catch-up, which helps explain recent superior gains.

As ever, there are risks. The Iran conflict is unguessable. A global recession could hit oil demand. The UAE is pulling out of OPEC, which could boost supply and squeeze prices in the longer term. And there’s climate change. BP and Shell remain high-risk, high-reward stock opportunities. I think both are well worth a closer look, for investors who have a taste for excitement – and dividend income.

The post A £20,000 ISA invested in red-hot BP and Shell shares 1 year ago is now worth… appeared first on The Twelfth Magpie.

So, might they still be attractively priced for a long-term investor like myself? Or could it make more sense to do nothing for now?

Strong business, helped by the oil price

The reason for that rise is not hard to discern.

With oil prices having soared lately, companies that extract and sell the black gold are in clover.

Indeed, while Shell’s 36% jump in the past year is impressive, rival BP has performed even better. Its share price is now 60% higher than it was 12 months ago.

It is possible to look at those sorts of price movements and put them to down to current high oil prices. If they come back down to earth – as they will sooner or later, based on historical norms – then both Shell and BP shares could fall.

But it is also possible to overstate the short-term factors here. Shell is a massive company with large reserves. Even if oil prices fall, it could potentially still generate chunky profits.

Even after its share price climb over the past year, the Shell dividend yield of 3.3% is slightly higher than the FTSE 100 average.

My concern about buying high

Still, while there is a lot to like about the Shell business, the current valuation does not strike me as particularly attractive.

Shell shares sell on a price-to-earnings ratio of 15. The prospective valuation could be cheaper, in fairness, as rising oil prices may help boost Shell earnings in coming quarters – perhaps substantially.

However, my approach to investing in cyclical industries like oil or mining is that it is best to try and buy at or near the bottom of the pricing cycle, when selling prices are depressed and share prices tend to be cheap too.

It is never possible to know with certainty when we are at the bottom of the pricing cycle. But I do know for sure that with oil prices where they are now, we are nowhere near it.

I could still buy Shell shares today, likely picking up some dividends along the way, and hang on while hopefully they go up in value.

But as a long-term investor, I am not simply seeking to make a fast buck. I want to buy at what I see is an attractive price and then hold for years, without worrying about short-term movements in the oil price.

On top of that, the last time I owned Shell shares I got a nasty surprise when – in 2020 – it cut its dividend for the first time since the Second World War. That is a risk with any share, but it did underline for me just how damaging an oil price crash can be for the company’s finances.

So, while oil prices remain elevated, I have no plans to buy Shell shares again. Fortunately, there are other shares in the London market that look like much better value to me right now.

The post Up 36%, could Shell shares still offer value for the long term? appeared first on The Twelfth Magpie.

Investors in rival BP (LSE: BP) have even more to shout about. The oil giant has had a wretched time since the Deepwater Horizon catastrophe in 2010. That was followed by a messy U-turn on renewables, constant pressure from activist investors, and the relatively quickfire exit of two CEOs.

When I decided to add an oil stock to my SIPP 18 months ago, I chose BP because of its problems, not despite them. The shares were cheap, the yield topped 6%, and I saw recovery potential if it got its act together. I’m still not convinced the BP strategy is fully there, but the shares are up a mighty 63% over the last year and 33% over the last three, otherwise volatile, months. The dividend yield has slipped, but still pays a solid 4.26%.

Top FTSE 100 growth stocks today

Where both stocks go in the short run largely depends on events in Iran. Lately, investors have chosen to be more optimistic. Brent crude has eased back to $95 a barrel, and BP and Shell have retreated too. But if the Strait of Hormuz supply route remains under threat, shortages could bite quickly and oil and their stock prices could surge again. Over the next few weeks, anything could happen. But in the long term, this conflict could prove to be bad news for BP and Shell.

It’s reminded everyone just how essential oil and gas remain to the global economy. But it’s also revealed how exposed importing nations are to supply shocks. Until now, there was at least an assumption that key shipping lanes would stay open. That no longer feels certain. Hormuz has always been a potential chokepoint, but now it’s being throttled. All it takes is one cheap drone to stop a massive tanker.

The oil giants could slide

As a result, countries could accelerate plans to cut their reliance on imported oil and gas. China is ahead of the game, and major fossil fuel importers such as South Korea, India, South Africa, Turkey and Italy have fresh incentives to follow. Across Africa, micro-solar is expanding rapidly. Nobody wants to be at the mercy of geopolitical shocks.

If Iran tensions ease quickly, that urgency may fade, but a hard lesson has been learned. The world will still need oil and gas for years, not just for energy but for plastics, fertiliser and pharmaceuticals. Yet this could prove a turning point.

I think both BP and Shell are both worth considering today, as part of a balanced portfolio. But a vague long-term risk has suddenly come into sharper focus. There may be better long-term opportunities out there today.

The post Does the Iran war spell long-term disaster for BP and Shell shares? appeared first on The Twelfth Magpie.

Anyone spending £5,000 on the energy giant’s shares today would only be able to afford 149 of them. Does this mean it no longer makes sense to consider buying Shell’s stock? Let’s explore this further.

An unfortunate reality

It’s an uncomfortable truth that whenever there’s trouble in the Gulf region, Shell will be one of the beneficiaries. Unlike the vast majority of companies, soaring energy prices will boost its bottom line.

But commodity prices are impossible to predict with any accuracy. Their volatile nature means nobody knows with any certainty what Shell’s earnings are likely to be from one period to another.

Take the oil price as an example. Looking back to the start of 2005, the average monthly price of a barrel of Brent crude has varied from $18.38 (April 2020) to $132.72 (July 2008). Yes, it’s been over the psychologically important $100-mark during 55 of the past 255 months. But it’s also been below $55 in 50 of them.

Even so, the need for oil and gas, and the sheer size of Shell’s business, means that other than during the most exceptional of times – the pandemic is a recent example – it remains hugely cash generative.

From 2021-2025, it produced an enormous $265.3bn of cash from its operations.

But energy industry infrastructure is expensive and is often funded by borrowing. Indeed, the group’s net debt increased by $6.9bn to $45.7bn during 2025.

Not bad for income

In recent times, the group’s dividend has been pretty good.

From its adjusted earnings per share of $19.03 over the past five years, it’s returned $6.06 to shareholders. In cash terms, its 2025 payout was 62% higher than in 2021.

Although the recent surge in Shell’s share price has pushed its yield lower, the stock’s still paying 3.2%. This is slightly above that of the FTSE 100 as a whole.

However, it’s important to remember that dividends cannot be guaranteed.

My view

Although Shell is a reliable performer, I think there are better opportunities to consider elsewhere in the sector, like BP (LSE:BP).

Although it’s also affected by volatile energy prices and has a large debt pile, it’s part-way through a significant cost-cutting programme. And it’s selling some non-core assets to reduce borrowings.

Under shareholder pressure, BP’s actively seeking to address the fact that it has a lower margin than its larger rival and, even though it generates less revenue, it employs more people.

All companies in the sector will see their revenue move up or down in line with energy prices. But I think that BP, by becoming leaner and more efficient, will outperform Shell — relatively speaking — over the next few years.

And with a yield of 4.2%, its dividend is more generous.

On this basis, for investors who are comfortable with the sector, I think BP could be a stock to consider. But only by those who are prepared to take a long-term view and will be able to ignore the volatile nature of the group’s revenue and earnings.

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With the Middle Eastern oil & gas supply chain massively disrupted by the US-Iran conflict, fossil fuel prices have marched to multi-year highs, enabling diversified oil & gas producers like Shell to capitalise on their enormous operating leverage and rake in chunky profits.

Yet with news of a temporary ceasefire, Shell shares dropped sharply last Wednesday as investors began locking in their profits.

While it was certainly a relief to see a move towards de-escalation and peace, it’s important to recognise that the war has only been paused at this stage. And with peace negotiations on Sunday ending without an agreement, a return to hostilities could have significant implications for Shell and its share price.

Let’s breakdown some scenarios and estimate roughly where the Shell share price could end up over the next 12 months.

Scenario 1: the war rages on

If peace negotiations between the US and Iran breakdown and the conflict resumes, high oil & gas prices are likely inevitable in the short term. In fact, analysts at Bank of America have projected that the price of Brent crude could reach as high as $130 per barrel if Gulf disruptions persist into the second half of 2026.

That would pave the way for significant margin expansion for Shell. After all, the cost of producing one barrel of oil is mostly fixed.

However, with LNG production facilities in Qatar, Shell’s production volumes would also suffer, offsetting some of the profits. It also puts some of the company’s production assets in the potential cross hairs of the Iranian military, which, if targeted, would take years to repair at a very high cost.

Combined, the average consensus among experts in this scenario points towards a Shell share price of around 4,000p-4,500p. If accurate, that means a £5,000 investment today could be worth £5,850-£6,580 by this time next year.

Scenario 2: a peace agreement’s reached

If peace negotiations are successful, then oil & gas production across the Gulf states will begin to restart alongside repairs to infrastructure. However, fossil fuel prices won’t suddenly drop back to pre-war prices.

Bringing production back online is a gradual process, as is repairing damaged energy infrastructure. As such, a production normalisation across the remainder of 2026 will likely result in a non-linear fall in oil & gas prices, with current estimates projecting the price of Brent crude falling to around $70 per barrel 12 months from now.

At this price point, Shell’s recent earnings would compress significantly, likely dragging the shares back down towards pre-war valuation levels of around 2,900p, potentially crushing a £5,000 investment to £4,240.

The bottom line

Shell’s in a complex situation, which makes it difficult to predict which way its shares could move in the near-term. Its robust balance sheet does provide some handy resilience to lower oil & gas prices. But even in a higher price environment, the loss of production volumes presents a significant challenge.

Personally, I find this uncertainty in the least bit tempting. So I’m in no hurry to start snapping up shares today. But it’s still a business I’m watching closely.

The post Prediction: 12 months from now, £5,000 invested in Shell shares could be worth… appeared first on The Twelfth Magpie.

US president Donald Trump primed markets for a major escalation in Iran yesterday, then announced a 14-day ceasefire. UK blue-chips have soared in a huge relief rally. Mining stocks Antofagasta and Anglo American are both up more than 10%, with Rolls-Royce Holdings is close behind. Just six FTSE 100 stocks have fallen.

My own SIPP has taken a knock over the last month, with BP a rare bright spot. Today that’s flipped, as my recent laggards turn into leaders. What now?

The FTSE 100 is flying!

I’m not chasing this morning’s surge. Barclays was at the top of my buy list, but after this morning’s 8% jump I’ve decided to wait a little longer and see how prices settle. Instead, I’m wondering whether this is the moment to add to my stake in BP or diversify by buying Shell. The ability to disrupt roughly a fifth of global supply via the Strait of Hormuz has given Iran a chokehold on the global economy. It also shows that the world is heavily dependent on fossil fuels. Which reinforces the importance of the oil majors.

Companies like BP and Shell remain central to our energy security, with vast infrastructure, global distribution networks and the financial strength to sustain supply through volatile conditions. Even as the energy mix evolves, these companies retain scale and expertise that are difficult to replicate. Also, oil and gas extend far beyond fuel. They’re essential for feedstocks and fertilisers, as well as plastics, rubber and pharmaceuticals, driving demand across multiple industries.

At The Motley Fool, we focus on long-term investing rather than reacting to sharp daily moves like today. Over time, BP and Shell are still likely to play a significant role in the global economy. What today’s drop does do is make both cheaper to buy. Investors who missed the recent oil price rally may see value here. BP trades on a modest forward price-to-earnings ratio of 11.4 and is expected to yield 4.3% this year. Shell has a forecast P/E of 12.5 and a yield of 3.2%.

Despite today’s drop, both have delivered strong returns. BP is up 70% over the past year, while Shell has gained 50%.

There are risks. Heightened geopolitical tension could accelerate the shift towards renewables as governments seek greater energy independence. Policy pressure, carbon regulation and the climate change concerns could all hit valuations over time.

The situation in Iran is impossible to predict, and the short-term path for markets remains uncertain. Even so, this could be a moment to consider buying the dip. Investors must take the long-term view though. In the short term, BP and Shell shares could go anywhere. As could the rest of the FTSE 100.

The post The BP and Shell share price are being hammered today – what should investors do? appeared first on The Twelfth Magpie.

The conflict in Iran has sent the oil price soaring from just over $60 a barrel, to $113 at time of writing (31 March). And with no easy end in sight, it could go a lot higher. Gas prices are surging too. Where will this end?

Right now, many will switch on the news and see big oil and gas as a one-way bet. But there are complications upon complications. Events in Iran are impossible to predict. So is the market response to them.

FTSE 100 stars today

If some kind of peace treaty is brokered, the Shell and BP share prices could both reverse, even as oil prices and shortages intensify. Markets are forward looking, and will take a view on how things look likely to stand in roughly nine months time, rather than today.

It’s the same story with the oil price. While the price spike will boost revenues per barrel sold, they’ve got to get those barrels to market. Also, if profits soar while businesses and consumers struggle, panicky politicians could hit Big Oil with punitive windfall taxes.

It can also be dangerous to chase a share price higher. Latecomers could find themselves sitting on instant losses, if the mood changes after they buy. Yet to my surprise, BP shares don’t look too expensive today. The forward price-to-earnings (P/E) ratio is jut 14.6.

The dividend yield has fallen, due to the price spike. But BP shares are still expected to pay income of 4.28% this year, rising to 4.48% in 2027. It halted its generous share buybacks in February, before the crisis.

Shell isn’t pricey either with a forward P/E of 13.5. It’s had a lower yield than BP for some time, and it’s forecast to pay income of 3.19% this year, rising to 3.33% in 2027. It’s still running a $3.5bn buyback programme. Current events could deter another one, as the board may consider it’s not a good look at the moment. That’s me guessing.

Economic opportunities, political threats

When I decided to add an oil stock to my SIPP a couple of years ago, I chose BP for two reasons. First, the dividend yield was much higher at 6%, and second, the shares had taken a beating because of boardroom missteps, including a bungled green transition and reversal. I felt they had recovery potential, if I was patient. I’m happy with my choice today.

There are huge challenges. Climate change hasn’t gone away. But the Strait of Hormuz blockage has shown us one thing. Our world desperately needs fossil fuels. The Gulf conflict may accelerate the switch to renewables, but even then we still need it for fertiliser, feedstock, pharmaceuticals, and much besides. With a long-term view, I think BP and Shell are both worth considering.

But investors watching their shares soar face a terribly choice. A sudden ceasefire could leave them vulnerable. I suggest drip-feeding money, taking advantage of any dips. But only buy with a long-term view, because the short term is unguessable.

The post The rocketing BP and Shell share prices leave investors facing a terrible choice appeared first on The Twelfth Magpie.

Yet when looking at the outlook, some might be of the opinion that buying now’s a big gamble. Here’s why.

Warning signs

To begin with, a lot of the good news may already be factored into the current share price. The stock’s had a strong recent run, helped by rising oil prices and geopolitical tensions. But history tells us energy stocks can be very cyclical. When sentiment’s strong and oil prices are elevated, that’s often when expectations are already high.

Ultimately, it leaves less room for further gains because investors are already projecting the best-case scenario. Further, the oil price is a double-edged sword. Yes, the surge above $100 per bbl will help boost profits. But if prices spike too far, they can damage the global economy.

We know from the past that major oil shocks can trigger a recession, which would eventually hurt demand for energy and Shell’s earnings.

Finally, last month the business posted the latest quarterly results, and they weren’t flawless. Adjusted earnings fell from $5.4bn to $3.3bn this time around. For perspective, that was the weakest quarterly profit in nearly five years. It was blamed on a host of factors, including “lower marketing margins, lower realised prices and higher operating expenses”.

Taking a step back

When I consider all of those factors together, I do think it’s a big gamble to buy the stock right now. Don’t get me wrong, if it were trading near 52-week lows, given the weaker earnings and geopolitical uncertainty, it could be considered a good value pick. But with the share price at record highs, I feel it’s disconnected from what’s going on at the company.

Of course, some would disagree with me. If the conflict in the Middle East starts to de-escalate but oil still remains elevated, Shell could benefit from avoiding a global recession, but also enjoy the proceeds of high oil revenue. This could materially boost profitability.

Shell still generates huge amounts of cash. Even with the recent softer earnings, it produced tens of billions in operating cash flow and continues to return large amounts to shareholders through dividends and buybacks. This could interest income investors, with the divdiend yield at 3.11%.

Better options elsewhere

I think the risk relative to the potential reward of buying Shell shares right now doesn’t stack up. For exposure to the oil sector, there are more attractively valued stocks in the FTSE 100 and FTSE 250 for investors to consider. The same applies to people looking for dividend shares. On that basis, I’m staying away from Shell at the moment.

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