The stock market crash is throwing up FTSE 100 bargains everywhere you look. Despite the recovery, plenty of companies are still available at dramatically lower prices. I’m tempted by oil majors BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB).
I’ve picked out these two FTSE 100 stalwarts because they’ve endured two meltdowns. The coronavirus crash, and the oil price collapse. In both cases, the worst is over, for now. Despite this, both are way cheaper than at the start of the year.
The BP share price has crashed
This makes now an appealing entry point for those looking to build a portfolio of FTSE 100 shares large enough to help them retire early.
The BP share price started 2020 trading at around 480p. Today, you can buy it for 306p. That’s a thumping 35% drop. It’s the same story with the Royal Dutch Shell share price. It started the year trading at 2,258p. Today, it stands at 1,242p. That’s an even bigger drop, of 45%.
Just because a FTSE 100 company’s share price has crashed, doesn’t automatically make it a bargain. At one point, crude producers were paying people to take their shipments. That was due to the crash in demand as economies went into lockdown, and the surge in supply as Russia and Saudi Arabia turned on the spigots to destroy US shale.
Today, Brent trades at $35 a barrel. Coincidentally, that’s BP’s targeted break-even price for 2021, down from $56 in 2019, according to chief executive Bernard Looney.
Analysts at Redburn recently put Shell’s breakeven point at a more demanding $65. I’m therefore not surprised the group was first to blink, by cutting its dividend for the first time since the war.
The Royal Dutch Shell share price is cheaper
For me, BP has the edge on two fronts. Right now, the FTSE 100 giant yields a barnstorming 10.57%. That’s an astonishing income, especially when you consider all the dividend cuts elsewhere. You can take that tax free inside a Stocks and Shares ISA.
BP stood by its dividend despite a 67% drop in first-quarter profits. Dividends are never guaranteed, but even if management halved the payout, the stock would still yield 5%.
Shell looks cheaper, trading at 7.91 times earnings, against BP at 19.5 times. You have to take traditional FTSE 100 valuation metrics with a pinch of salt these days, but it’s a pointer.
FTSE 100 shares will build your wealth
The big question to consider with both FTSE 100 oil majors is where oil goes next. Renewables will continue to get cheaper, squeezing oil. Both companies will want to expand in this area, while looking to drive down carbon emissions from other activities. This will cost.
If you want to buy these two FTSE 100 oil stocks to fund your retirement, I would recommend doing it while they look relatively cheap. Like today.