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Why Now May Be The Time To Sell Royal Dutch Shell Plc

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By Royston Wild : The Motley Fool – Thursday, 14 April, 2016

Despite my repeated warnings of impending doom, share prices of many of the Footie’s commodity and retail giants have been carried higher again against a backcloth of giddy investor appetite.

Diversified commodities play Anglo American (LSE: AAL) has seen its share price explode 160% during the past three months, while oil giant Shell (LSE: RDSB) has enjoyed a 31% rise. Grocery house Tesco (LSE: TSCO) has seen its share value advance by a more modest 7% during the period.

But a recovery from January’s multi-year lows does not suggest that these stocks are on the cusp of a stunning turnaround. As legendary economist John Maynard Keynes’ famously pronounced: “the market can stay irrational longer than you can stay solvent.”

With this in mind, I believe these recent share price rises provide fresh opportunity for canny stock pickers to head for the exits.

Fundamental fears

Like Tesco, both Anglo American and Shell also face a prolonged backdrop of revenues pressure in the years ahead.

Shell has seen its share price explode in tandem with resurgent crude values. The Brent benchmark smashed back through the $40 per barrel landmark last week and was recently dealing above $44, the most expensive since late last year.

Meanwhile, Anglo American has charged skywards on the back of a resurgent iron ore price, the steelmaking ingredient striding back towards $60 per tonne in recent sessions.

But I reckon the broad-based ascent in commodity values is built on sandy foundations. Question marks remain over the strength of underlying Chinese material demand, while hopes of supply cuts in both the metals and energy markets are yet to be backed up with tangible action.

Indeed, a deal to freeze output at OPEC’s latest meeting this week is by no means a foregone conclusion. And many major metal producers remain committed to expanding capacity despite the threat of prolonged price weakness.

Against this backdrop, I believe both Anglo American and Shell are — like Tesco — in danger of experiencing a severe share price correction.


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