With BPs 2010 oil spill in the Gulf of Mexico still looming something in the region of $42-odd billion-big over the companys balance sheet, and Shells boardroom mouthing off at government policy wonks the whole time,anyone in their right mind should steer clear of these two toxic twins, so the thinking goes.
For this reason alone,despite recent better-than-expected earnings news from both companies, and some clear, decisivemanagement leadership displays in the past month from what amount to two great chief executives, these companies are both dragging their heels, sellingfor a measlyP/E of 12 amid peers in their 20s (some even higher).
A Special Situation
Thats a shame, and not because profit at Shell was up nearly 45% last year to$6.1 billion, or because BP expects a similar bump in its earnings come end of 2014,forecasting a healthy $30 billion of net cash flow.
Its a shame because with Russia becoming an even more central political hot potato, making an investment in two of Britains oil giants right now is actually more exciting than ever before.
For investors, its a chance to safely hone a strategy that makes money managers millions every year: spotting what are known as special situations unique storms of all the ingredients you can use to reap rare windfall one-time gains. Its the only opportunity youll everget to share in a deal where your side got the upper handover Vladimir Putin, too.
From Russia With LNG
Foremost right now, politicians in Westminister and Washington DC from both sides of the aisle seem fairly united intheir opinionsof Putin. While some investors might feel similarly sickened by the political affairs in Ukraine recently, its hard to deny that both Shells CEO Ben Van Burden and BPs chief executive Bob Dudley havent taken extra special vigilance when it comes to looking out for the interests of thestakeholders whose money they handle.
As a result, bothCEOs have barraged governments in the west with stinging criticisms every time they havemadenoises aboutembargoes and heavy sanctions. That hasstirred up fuss at home, especially as its all for the sake of corporate profits.
But whenit comes to investing your hard-earned cash on what is in large part a gamble on someone elses leadership approach, its sure nice to know these gentlemen think ofit as your money!
A CorporateRocket Launcher
But the real gem is in the fact that essentially, both firms arehandingPutin his ambition of building out Russias territory in the form of oil and gas networks across central Asia.
SinceBP and Shell have their own lucrativestakes in theRussian economy as it is, these areonly about to leap in value. In fact, the signs are there that this is already under way.
BPs investment in Russia is the single biggest of all oil companies in the world. With 7.67 billion invested in a joint venture with the Russian state companyRosneft, there were rumours that plans to extract shale in the Volga-Urals might be blighted as a result of the Ukraine situation spiralling out of hand. BP, however, waved off the concerns over the summer, claiming that the arbitration does not concern BP and neither is Rosneft actually a party to it. Permissionsto drill, it seems, wereforthcoming from the Russian officials.
Meanwhile in the case of Shell, which has a 10 million metric tonne LNG train in the country, van Beurden recently seemsto have secured an additional 5 million metric tonnes.
These are the first of many treats in store of shareholders of BP and Shell in the coming years.
How To Get One Over Putin
Both Van Burden and BPs chief executive Bob Dudley know exactly what they are doing: seizing a once-in-a-lifetime opportunity.
That opportunity? Its the chance to get one over on the man who wins hands down at every negotiation. By assisting President Vladimir Putin at a time as politicallydelicate as this, theres no way both fat cats dont come out of this deal grinning from ear to ear with more expedited projects and hand-me-down profit sources than they know what to do with. And thatswonderful news if you are one of the beneficiaries!
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Daniel Mark Harrison has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.