Royal Dutch Shell is another European oil stock favored by Macquarie. “Shell is a company that benefits from the oil price environment,” he said. “They have good growth in the near term and very strong free cash flow yields.” Macquarie expects Shell to outperform with a 12-month price target of $25.50.
Gammel’s confidence in Shell may come as a surprise to investors. The oil company recently reported disappointing second-quarter earnings of $5.7 billion. The miss was attributed to maintenance costs and shutdowns in the U.S. Gulf and in Australian Liquefied Natural Gas.
Earlier in the month, Shell also abandoned its bid for Cove Energy which holds a promising stake in east African gas.
While these setbacks may signal weakness, Gammel remains confident in the stock and the management.
“I think on the missed M&A, that was actually an exercise in good capital stewardship on the management’s part,” Gammel said. He explained that Shell was getting into a bidding war that had reached a level that looked a bit too high for Cove. “Backing away is good for the investor,” he added.
Gammel is expecting European gas producers to do well moving into the winter. “We expect that the MMB can trade around the equivalent of $10 per MMBTU which is a pretty strong market,” he said.
—BY CNBC.com’s Madeline Laskoski
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Jason Gammel does not have a position in Shell or BG Group.