Royal Dutch Shell Trades at a Significant Discount to U.S. Peers. The Stock Is One of Barron’s Top Picks for 2022.

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This article is an excerpt from Barron’s 10 favorite stocks for 2022. To see the full list, click here.

Energy supplies could be tight and prices high for years. Royal Dutch Shell (ticker: RDS.B) stands to capitalize as one of the world’s top energy operations. It trades at a significant discount to its U.S. peers,  Exxon Mobil  (XOM) and  Chevron  (CVX).

Shell’s U.S.-listed shares trade around $43, just seven times projected 2022 earnings, against a price/earnings ratio of 11 for Exxon and 12 for Chevron. Shell yields 3.9%, less than Exxon or Chevron. Shell, however, has a conservative payout ratio at about 30%, after a sharp dividend cut in 2020.

Shell is “one of the cheapest large-cap stocks in the world,” wrote activist investor Dan Loeb of Third Point, which has taken a stake.

Its best business may be the world’s largest liquefied natural-gas operations, which requires only modest annual capital expenditures.

Loeb’s push for a breakup of Shell looks like a long shot, but it’s possible that the company will take public a part of the world’s biggest network of service stations.

Bernstein analyst Oswald Clint praised the energy giant’s recent move to simplify its corporate structure by domiciling in the United Kingdom and collapsing its two share classes into one. Clint sees the company’s stock buybacks ramping up in 2022 and has a price target of $63 on the American depositary receipts.

Shell’s discount to its U.S. rivals reflects the intense pressure in Europe to scale back its oil and gas operations. That remains a risk, but Shell is committed to its core business.

Barron’s Stock Picks for 2022

We have identified these 10 as among the best candidates to outperform the market next year.

Company / Ticker Recent Price YTD Change 2021E EPS 2022E EPS 2022E P/E Dividend Yield Market Value (bil) / AMZN $3,377.42 4% $41.11 $51.37 65.7 None $1,713
AT&T / T 23.71 -18 3.38 3.17 7.5 8.8% 169
Berkshire Hathaway / BRK.A 454,550.00 31 17,466.30 18,928.50 24.0 None 673
General Motors / GM 58.39 40 6.73 6.93 8.4 None 85
Hertz Global Holdings / HTZ 21.01 -22* 4.02 2.55 8.2 None 10
IBM / IBM 125.93 5 10.05 11.04 11.4 5.2 113
Johnson & Johnson / JNJ 173.01 10 9.83 10.38 16.7 2.5 455
Nordstrom / JWN** 20.05 -36 1.27 1.99 10.1 None 3
Royal Dutch Shell / RDS.B 42.82 27 4.86 6.19 6.9 3.9 166
Visa / V*** 214.37 -2 5.91A 7.04 30.5 0.7 467

*Since July 1. **Estimates for Jan. 2022 and Jan. 2023 fiscal year ends. ***Sept. fiscal year end. E=estimate. A=actual.

Source: FactSet

Write to Andrew Bary at