We recently made a list of the 10 Best Global Stocks To Buy Now. In this piece, we will look at where Shell plc (NYSE:SHEL) ranks among the top ten global stocks to buy.
With the third quarter of 2024 ending, the discourse on the stock market for global equities has shifted back to interest rates. This comes after artificial intelligence drove markets through the course of the year, but with interest rate cuts having commenced in Europe and China’s economy refusing to roar back, global equity investors are carefully parsing through their investments to see which stocks might be worth it.
This was the gist of a note released by Goldman Sachs in July. In it, the bank advised investors to sift through stocks to eliminate those that have exposure to China. This is because Chinese economic growth has remained sluggish, and after Q2 GDP growth figures for the Asian economic giant sat at 4.7%, Goldman and Citi slashed their GDP growth estimates for 2024 to 4.7%. The two banks’ earlier estimates were 4.9% and 4.8%, and in its European investor note, GS’ analysts raised alarm for several potential headwinds for European firms that could emanate from China. The top three of these were a weak demand in China for discretionary products, the country’s plans to tax luxury goods, and potential retaliatory tariffs against European countries after the EU decided to increase tariffs for Chinese made electric vehicles. “While a great deal of earnings downgrades have already occurred year-to-date for our luxury basket, we worry that more could take place,” the Goldman analysts warned, adding that “the valuation premium of the basket has deflated, but remains on the high side of its history.”
A slowdown in Chinese consumer spending, which was also evident in the country’s latest data release that saw retail sales growth sit at 2%, is particularly worrisome for German stocks. This is because they have already felt the pinch of the slowdown during Q2 and H1 2024. For instance, German watch company Swatch saw its China sales drop by 30% in H1 while the luxury goods manufacturer LVMH experienced a 14% Asian sales drop in Q2 which came after Mercedes-Benz’s China sales dropped by 3% in Q1.
For Germany, this is particularly troubling as its economy has suffered after the disruption of cheap Russian gas in the aftermath of the Ukraine invasion. The German economy contracted by 0.3% in 2023 and continued its downward pace in Q2 by posting a 0.1% sequential contraction. German firms’ disappointing Chinese performance came when the country’s overall exports to China dropped by 14% annually in May to sit at €7.5 billion.
Shifting gears, let’s take a bird’s eye view of global stocks. On this front, JPMorgan has some insights. In its mid year outlook, the bank’s chief global economist Bruce Kasman shared that “Global growth has moderated to a still-solid 2.4% (annual rate) and is less dependent on a U.S. demand engine, as recoveries in Western Europe and emerging markets (excluding China) find firmer footing. The manufacturing sector is also showing signs of recovery, helped in part by a pickup in business spending.” However, in the report which was published in July, the bank remained pessimistic about inflation as it shared that core inflation should sit at 3% at the close of 2024. This led it to wager that higher for longer was the way to go and led to a cumulative 35 basis points of easing in developed markets except Japan by 2024 end.
Yet, the European Central Bank (ECB) led the global charge for rate cuts. It cut interest rates by 25 basis points in June and followed it with another 25 basis point cut in September. Additionally, the Bank of England (BOE) also cut rates by lowering rates by 25 basis points to 5% in August for the first interest rate cuts since the coronavirus pandemic was wreaking havoc in 2020. Moving forward, analysts are divided on the BOE’s future rate cuts, and many believe that the ECB might be less forthcoming with the cuts as well.
While several of the world’s biggest economies have suffered this year, global stocks as a whole have performed well. One of the most well known global stock indexes compiled by the MSCI opened at 3,144 points this year. Its latest value is 3,728 to mark a neat 18.5% year to date growth. However, European stocks have lagged in this performance, with the index of the region’s top 600 stocks having delivered a 10.2% return year to date through price appreciation. This is unsurprising since these 600 firms’ Q1 2024 EPS dropped by roughly 2.5%. However, estimates suggest that these stocks can post at least a 10% EPS growth during Q3 2024.
Our Methodology
To make our list of the best global stocks to buy, we ranked the US listed stocks of JPMorgan’s International Equity ETF by the number of hedge funds that had bought the shares in Q2 2024 and picked the top stocks. This particular ETF was preferred because it chose to focus on a diversified set of global stocks as opposed to several others that focused primarily on US tech giants.
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).
An investor in a suit representing the company, seated in front of a long table of global leaders discussing the company’s investments.
Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders In Q2 2024: 49
Shell plc (NYSE:SHEL), like BP, is another mega oil firm that is focusing on developing cleaner fuels. Consequently, during the first half of 2024, 92% of its exploration, upstream, and renewable revenue come from natural gas or renewable sources. However, Shell plc (NYSE:SHEL)’s largest business is still its marketing division which includes revenue from selling wholesale commercial fuels. It earned the firm $62 billion in sales in H1, which accounted for 42% of the firm’s overall sales. This dependence has also forced Shell plc (NYSE:SHEL) to shift its strategies lately. It now aims to maintain current production volumes until 2030, which is a marked change over the previous plan to cut it by 55%. Shell plc (NYSE:SHEL)’s pivot to natural gas and liquefied natural gas (LNG) can set it up well for a future that prefers cleaner burning fuels. The firm also aims to invest up to $15 billion in clean energy by 2025, to create exposure to markets such as EV charging.
Here’s what Shell plc (NYSE:SHEL)’s management is planning for its clean energy initiatives:
“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 5th on our list of the best global 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 was originally published on Insider Monkey. All investment decisions should be made after consulting a qualified professional.
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