A £20,000 ISA invested in red-hot BP and Shell shares in the last 1 year is now eligible…
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BP (LSE: BP) and A shell (LSE: SHEL) shares are currently in demand. As the price of oil rises due to the events in Iran, they look like the obvious beneficiaries. But investing has never been so easy. Is there a hidden danger we are talking about?
As a general rule, rising oil prices are good for energy stocks. At the start of the crisis, Brent crude traded at just over $60. today it is $114. If the fight continues, analysts say it could reach $120. So how did the shares of BP and Shell respond?
Since the battle began on February 28, BP’s price has risen by nearly 20%. Shell was more sluggish, up 7%. Given that we are dealing with the biggest electricity supply shock in history, I expected better. Here’s what I think is going on.
Why aren’t these FTSE 100 stocks doing even better?
First, the high oil price has not translated into profit so far. BP reported yesterday, but its Q1 results reached 31 March, so they held the first stage of the spike. Second, investors have largely welcomed Donald Trump’s assurances that the war is under control. No one wants to be big on BP and Shell, only to have the Strait of Hormuz open again the next day. Their shares will go down as a result.
There are long-term concerns. The oil shock may continue for Big Oil. It could result in higher taxes, and prompt import-dependent countries to accelerate their transition to renewables. No one takes anything for granted. However, one thing is clear. BP and Shell have made good investments recently.
Over the past 12 months, their shares have risen 60% and 34%, respectively. If an investor split a £20,000 Stock and Shares ISA equally between them in the last one year, their BP stake would be worth £16,000 and Shell £13,400. But that’s not all they could have.
BP has a trailing yield of 4.25%, Shell at 3.25%. That raises the amount of their refund to £16,425 and £13,725, respectively. In total, the two energy giants turned a £20,000 ISA investment into £30,150, in just one year. That shows the power of top stocks to build wealth. But can it continue?
They are dangerous, but are they beneficial?
Given today’s high oil price, there are many opportunities for additional rewards. Yesterday (28 April), BP said profit from recovery costs doubled from $1.5bn to $3.2bn in Q1, boosted by its busy trading division. However, there are still challenges. Total debt rose by $3.1bn to $25.3bn, the board said, “mainly driven by low operating cash flow”. Shell’s debt remains high, rising by $6.9bn by 2025 to $45.7bn. However, it is a bigger company, with a market value of £184bn compared to £83bn.
BP has been the worst case scenario, getting into renewables and then out again, with ongoing boardroom problems. Its shares have trailed Shell for years but are now playing catch-up, which helps explain recent high gains.
As always, there are risks. The Iran conflict is inevitable. A global economic slowdown could affect oil demand. The UAE is pulling out of OPEC, which could increase supply and pressure prices in the long run. And there is also climate change. BP and Shell remain high risk, high reward stock opportunities. I think both are worth a closer look, for investors interested in excitement – and dividend income.
