I’m searching for the best, cheap FTSE 100 stocks to buy for my portfolio. And Shell (LSE: SHEL), with its low valuation, has grabbed my attention today.
The business currently trades on a price-to-earnings (P/E) ratio way inside value territory of 10 times and below. Is it too cheap for me to miss?
Shell’s share price rises again!
The oil price spiked again on Wednesday following news that the EU will ban Russian oil imports by the end of the year. As a result, oil majors like Shell also rose in midweek trade. At £22.50, Shell’s share price came close to hitting new two-and-a-half-year highs earlier. It was last 1% higher from Tuesday’s close near those peaks.
Yet despite these fresh gains, the FTSE 100 oilie still looks cheap, on paper. Today, it trades on a forward price-to-earnings (P/E) ratio of 6.4 times.
Should I buy Shell?
It’s difficult to say what oil prices — and as a consequence Shell’s profits and share price — will do next. The war in Ukraine could help crude values remain rock-solid if supply strains persist, boosting earnings at the oil majors.
On the other hand, the impact of soaring inflation and resurgent Covid-19 cases in China on oil demand, might pull crude values lower again.
To be honest, the direction of Shell’s share price in 2022 isn’t really affecting my decision of whether to invest. I buy shares based on the returns I can expect to make over a number of years (say a decade or more). And right now I have more than a few concerns over Shell.
Big green risks
I like the steps Shell is making to increase its exposure to renewable energy. This is an essential long-term strategy as the world moves away from fossil fuels. Just last week, Shell announced it was paying $1.55bn to acquire India’s Solenergi Power. This business has 2.9 gigawatts-peak (GWp) of wind and solar assets and has a pipeline for another 7.5 GWp.
However, I worry that Shell has left it very late to join the renewables race and meet its net-zero-by-2050 plans. The cost of acquiring renewable energy projects is rising as the oil industry’s big players dive in. This could potentially have large ramifications for shareholder returns.
Then there’s the fact that oil and gas will remain the chief earnings driver for Shell for many years to come. This leaves the company (like most of its peers) in massive danger as renewables take over from fossil fuels.
Buying renewable energy stocks instead
For this reason I’d much rather buy pureplay renewable energy stocks. Greencoat UK Wind is one that’s on my radar. And this particular company also trades on a rock-bottom P/E ratio of around 6 times.
There are plenty of other top renewable energy stocks for me to choose from today as well.