In his Validea newsletter, John Reese selects stocks based on the methodoligies of many of the stock market's most successful and well-known investors. Royal Dutch Shell plc (RDS.A) scores a 95% rating based on the investing approach of the legendary technician Marty Zweig.

Royal Dutch Shell explores for crude oil and natural gas around the world. The upstream segment is engaged in the exploration for and extraction of crude oil, natural gas and natural gas liquids, and the marketing and transportation of oil and gas, and oil sands; the downstream segment is engaged in oil products and chemicals manufacturing, and marketing activities.

Under the Zweig methodology, the P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current market P/E because the situation is much too risky. Royal Dutch Shell's P/E is 11.23, based on trailing 12 month earnings, while the current market PE is 15.00. Therefore, it passes the first test.

The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.

The first of these criteria is that the current EPS be positive. Royal Dutch Shell's EPS ($1.35) pass this test. The EPS for the quarter one year ago must also be positive. The firm's EPS for this quarter last year ($0.70) pass this test.

The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. The company's growth rate of 92.86% passes this test.

Another criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down.

If a company does have a high level, an investor may want to avoid this stock altogether. RDS.A's Debt/Equity (38.67%) is not considered high relative to its industry (55.65%) and passes this test.

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