Are BP plc and Royal Dutch Shell plc the best stocks for Trump insurance?

The Motley Fool
Shell petrol station sign
Shell petrol station sign

Of all the stocks trading in London today, BP(LSE: BP) and Royal Dutch Shell(LSE: RDSB) could be the best investments to protect your portfolio against the policies of Donald Trump and a disruptive Brexit.


There are several reasons why this could be the case. For a start, the fortunes of Shell and BP are linked to the price of oil and demand for oil. So no matter what the political environment, as long as there's a demand for oil, and prices don't fall to zero, Shell and BP will remain relevant. What's more, Trump is widely believed to be supportive of the oil industry and against renewable energy.

Secondly, the demand for oil and petroleum products is still growing. Shell and BP are some of the largest oil traders and refiners in the world. Indeed, as the price of oil bounces around the $50 per barrel level, Shell and BP are generating the majority of their earnings from oil trading, marketing, and refining, which are all separate businesses from getting the black stuff out of the ground. Moving and refining oil is a specialist business, and as long as there's a demand for hydrocarbon products around the world, BP and Shell's expert services will always be required.

Third, Shell and BP are geographically diversified. These companies have operations all over the world, and if one government blocks them from operating in a particular region, it will be damaging but in no way terminal to the entire group. So, if the UK collapses into a tough recession following Brexit or the US becomes an isolated state surrounded by walls, BP and Shell should be able to navigate the fallout fairly unscathed.

Resilient business models

BP and Shell have shown how resilient their businesses models are over the past two years as the price of oil has slumped to levels not seen for several decades.

Even though many smaller producers have collapsed under mountains of debt, BP and Shell haven't even cut their dividends to shareholders. Management has cut costs to the bone and select asset sales have helped strengthen balance sheets. These actions to help companies navigate the downturn seem to have worked.

For the third quarter, Shell reported income of $2.8bn, above larger peer ExxonMobil's third quarter net income of $2.7bn. Shell benefitted from higher production and lower production costs after its acquisition of BG Group earlier this year started to pay off. Meanwhile, BP's management believes the company is on track to rebalance cash flows next year at $50 to $55 a barrel, an astounding accomplishment considering the company's cash flow break-even was around $90 a barrel two years ago.

The bottom line

Overall, Shell and BP's defensive nature, diversification and flexibility are three reasons why these companies look to be the best Trump and Brexit insurance policies. Shares in BP and Shell support dividend yields of 7.4% and 7.5% respectively.

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Rupert Hargreaves owns shares of Royal Dutch Shell B. The Motley Fool UK has recommended BP and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.