3 reasons to invest in BP

Shares of the oil company haven't fully rebounded since 2010's Deepwater Horizon spill, which might be good news for long-term investors.

By Benzinga Jan 7, 2014 11:39AM

A British Petroleum (BP) logo © Toby Melville/ReutersBy Jonathan Yates

 

Scandals can be gifts to investors.

 

When an incident happens that does not cripple the business model or the commercial enterprise of a publicly traded company, it is an ideal time to buy for the long term.

 

That has certainly been the case with BP (BP), the major oil and natural gas company based in London, since its Deepwater Horizon explosion in 2010.

 

While the company has recovered, it is still not trading at the valuations of an Exxon Mobil (XOM) or a Chevron (CVX).

 

That flashes a "buy" signal to long-term investors.

 

BP is undervalued as it is trading at a price-to-earnings ratio of around 6.4. For Exxon Mobil, it is over 13. The price-to-earnings ratio for Chevron is over 10. It is also selling at a more attractive price-to-book and price-to-sales valuation.

 

While its valuations are low, its dividend is high.

 

The dividend yield for BP is around 4.75 percent. Exxon Mobil has a dividend yield of 2.53 percent. It is around 3.2 percent for Chevron. As detailed previously, the income component of major oil companies is a very attractive feature.

 

BP is moving forward while the price is still lagging.

 

There is also a bullish future for oil.  Warren Buffett has invested heavily in the sector. A recent report from the International Energy Agency predicts a massive increase in the demand for energy. That will increase the need for oil.

 

For the last year, BP rose about 16 percent. A nice gain, but below what the Dow Jones Industrial Average and the S&P's 500 Index increased. There is still upside in the stock. It is undervalued compared to other major oil firms. The generous dividend pays for investors to wait for the share price to fully value the stock.

 

Read more from Benzinga:

23Comments
Jan 7, 2014 2:31PM
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Interesting.  Just a day or two ago, some knucklehead reported on an annalist saying oil will DROP to $80 or less per barrel this year because the US is producing so much oil and Lybia has restarted a closed production facility and the Saudis are going to be hurt because they won't be able to keep oil at their benchmark $80 a barrel, blah, blah, blah. Who to believe?
Jan 7, 2014 1:20PM
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Hmmm ... yeah ... other than it's trading at it's 52 week high with a forward p/e of 55 ... stock in a bridge anyone?
Jan 7, 2014 3:48PM
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And . . . Nixon has a secret plan to end the Vietnam war.

 

 

Jan 7, 2014 6:01PM
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Are wars, money and pollution the 3 main reasons?

Where's my cookie?

Jan 8, 2014 12:11AM
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Warren recently dropped a chunk of Conoco P (COP) for larger positions in Exxon..

Some say it may have been an unsettling move...Maybe he is hedging them against each other.?

The jury is still out...

But we didn't dump our COP because of it, if nothing else; We will probably add to position.

Buffet is good and respected, but makes mistakes like everyone else...He admits his.

Jan 7, 2014 4:19PM
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2% dividend is not high.  Valuation relative to industry is low.  Reputation of making false claims and inflating resource data.  Price fixing forced it to abandon Washington State market.  Yep sounds like a good stock for me.  A short sale please.  Do editors ever check the data before they let their journalists publish this trash?
Jan 7, 2014 2:43PM
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stepping on your backs to get rich...at the pump!   pathetic!
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