Shell and Unilever — Two Game-Changers to Buy

by Richard Band | April 27, 2012 2:00 pm

No rants about the market today.  I promise!

Instead, I want to focus on two game-changer earnings reports.

The new (and positive) developments heralded in these releases could have repercussions for years to come.

First was the pleasant surprise from Royal Dutch Shell (NYSE:RDS.B[1]).  The oil titan posted a 16% jump in Q1 earnings, based on the “current cost of supplies” measure, which strips out the effect of changes in oil prices.

Ever since an accounting scandal tarred Royal Dutch’s reputation back in 2004 (the company was accused of overstating its reserves of oil and natural gas), analysts have treated the stock with caution and skepticism.  Even today, as a number of subscribers have been quick to remind me, not many Wall Street eminences share my enthusiasm for RDS.

But that may be about to change.  Shell’s latest report shows that management is making real strides toward improving the efficiency of the organization.

What’s more, RDS has an ace up its sleeve.  Natural gas is drastically under priced, in terms of its energy value, relative to oil—and Royal Dutch is a world leader in the technology for converting low-priced natural gas into high-value motor fuels (especially diesel and jet fuel).

Shell just completed a giant gas-conversion plant, costing $18 billion, last year in Qatar.  Now, according to CFO Simon Henry, the company is considering sites in Texas or Louisiana for a similar facility.  Assuming the plans come to fruition, this outfit could be minting astronomical profits—selling refined products for up to 10 times the cost of the natgas feedstock—during the second half of this decade.

Now do you see why I’m willing to buy (and hold) RDS for the long pull even though I’m skittish about the stock market over the next few months?  We’ve got a gem in the making here.

Today’s second eye-opener came from Unilever (NYSE:UL[2]), the producer of Lipton teas, Dove soap and Ben & Jerry’s ice cream.  UL logged a hefty 8.4% increase in Q1 global sales, well above Street expectations.  Sales to emerging markets, which now make up well over half of the company’s total, spiked 11.9%.

Paul Polman, Unilever’s brilliant CEO, came over from Nestle (PINK:NSRGY[3])at a tough time—in the midst of the autumn 2008 financial crisis.  Steadily and patiently, he has put the company back on a strong growth track.  Today’s hefty 8% dividend hike shows UL’s directors believe the results are for real, and here to stay.

Source URL: https://investorplace.com/2012/04/shell-and-unilever-two-game-changers-to-buy-rds-b-ul/

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