BP is Looking Attractive...
Big Oil has been off my radar for quite some time, the last time I was interested was ~2 years ago. I just wasn't comfortable buying into oil when it was trading up in the $100/barrel range. I'm a firm believer that oil is here to stay for the foreseeable future, as much as I'd like to see alternative energy source become more mainstream, that's just not the current situation.
However, with the recent self in oil and the overall market in general (especially Europe) I am once again becoming intrigued with Big Oil. Certain companies are certainly looking more attractive than others right now and I'd have to say BP is at the top of that list. The only other candidate I would even consider in the same mix is TOT but Europe SCARES me!!
On most accounts BP is relatively cheap when compared to other Big oil competitors. I won’t bore you with the details but on just about every metric you can think of, BP is selling at a significant discount to industry as well as its own valuation levels.
There are a number of reasons in general why the large discount.
1) We all remember when it was hammered in 2010 from that minor incident in Gulf, something about a bit of oil spilling etc. etc. ;) BP has greatly improved its image since then but share price has yet to recover, and that’s fine by me since it allows a good entry point.
2) Oil has lots ~25% in the last month! I don’t view >$100/barrel oil sustainable in the near term and feel much more confident in the $70-80/barrel range.
3) Overall market has lost ~10% in the last few weeks.
4) European stocks and all things related are getting hammered…Who knows how far down the black hole they are willing to go.
I’d be willing to wager oil will head down a few more bucks, into the high 70’s at least and the market has probably got at minimum a few more percent lower to go. So with all that being said, BP in the lower to middle 30’s would seem like an awfully good deal to me. You’d be buying a major oil player that has significant natural gas exposure and a ~5% dividend for something like a forward PE of 5. That’s looking pretty darn good to me!
Seeing as my oil/energy exposure has decreased a lot, this is a play that I am seriously considering.
Happy trails Fools!