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Lately, when Jim Cramer has gotten behind a company in the energy sector, it's been a firm such as EOG Resources, Carrizo Oil & Gas and/or Magnum Hunter, independent players that are largely tethered to the energy renaissance underway in North America.
"So why the heck am I recommending Shell? " mused Cramer.
Unlike his other picks which were fairly niche, Shell is a big integrated oil company with far flung operations in over 140 countries. And to make his stock pick all the more confounding, Shell has had multiple cost overruns on key projects, it struggles with an underperforming downstream business and it hasn't leveraged its American shale assets well. "In short, Shell has been a hot mess," Cramer said.
And that's exactly why the "Mad Money" host is a fan.
Because Cramer believes the need for energy will grow substantially as the global recovery takes hold, he thinks Shell is still looking at substantial demand for its products. Therefore, if the missteps can be rectified, then Cramer believes the stock should rally.
And recently, Cramer has identified five signs that suggest to him Shell is getting its house in order. They follow:
1. Peter Voser, the former CEO, retired and was replaced as chief executive, on January 1, by Ben van Beurden, a respected 30-year veteran of Shell. "From the get-go van Buerden has been doing everything right. On his first day he signaled that the company would change, with a renewed focus on increasing profitability, capital efficiency, and cash flow," Cramer said.
2. At Shell's analyst meeting three months ago, van Beurden laid out an agenda for improving both the company's financial performance and its capital discipline. "He's said it's simply unacceptable that Shell spent $80 billion last year, or 40% of its total capital employed, in its North American assets, yet the company lost $2 billion in North America. I believe van Beurden will impose a lot more discipline on underperforming divisions."
3. Shell has a number of big projects coming online that should help boost production. "That's in addition to seven major projects they launched last year," Cramer said.
4. Shell has gotten aggressive about selling off non-core assets. "By the end of next year, van Beurden plans to have sold $15 billion of unwanted assets," Cramer said. "That frees up a lot of cash."
5. Shell pays investors a dividend that yields 4.5%. "Investors are getting paid to wait," Cramer said. "And as management sells off more assets, I think they'll use the cash to either increase the company's buyback or further boost its dividend."
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That's why Cramer is a buyer. "I'm not saying there won't be any bumps in the road, but I do think the turn is for real," Cramer said. "I think the stock should have a lot more upside. And one more thing, Shell trades at a discount to the other majors. "
Call Cramer: 1-800-743-CNBC
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