Shares of BP plc (NYSE:BP) could be one of the best values out of all the major integrated oil stocks. While the company has made enormous progress on dealing with the oil spill in the Gulf of Mexico, and even though it recently agreed to settle some claims with the United States Government for about $4.5 billion, some investors still seem reluctant to buy the stock. While the memory of the oil spill and the concerns about remaining claims might linger for awhile longer, history has shown us that these events and concerns eventually fade over time. Just consider the Exxon Valdez oil spill in Alaska many years ago, which put pressure on the stock and created many expensive claims. Investors who avoided Exxon after the stock declined ended up missing out on a very attractive long-term buying opportunity. It seems that history is repeating itself as some investors still avoid BP shares because of the ongoing headlines about settlements and lawsuits. However, the recent settlement with the U.S. Government is a milestone for the company and it is probably an inflection point whereby the company can refocus its efforts towards exploration, production and growth. If that is not enough, here are 3 more reasons to consider buying the stock now:
1) A new report states that BP could be planning a major buy back of shares. The company is expecting to receive about $12.3 billion from the sale of a stake in a joint venture "TNK-BP," and that gives it plenty of extra cash. The stock buy back is reported to be worth about $5.9 billion. Stock buy backs reduce the number of shares outstanding and this can boost future profits.
2) Although BP suspended dividend payments for about 3 quarters after the oil spill in 2010, it has a very strong history of paying quarterly dividends to shareholders. It resumed a quarterly dividend in March 2011, and it has even increased the payout since that time. That is a very strong sign that this company has turned the corner and once again has the financial strength to increase payments to shareholders.
3) BP looks cheap when looking at a number of valuation metrics. It trades for just about 8 times earnings and yields over 5%, while the average stock in the S&P 500 Index (NYSEARCA:SPY) trades for around 14 times earnings and yields just over 2%. It also looks undervalued when compared to U.S.-based Exxon Mobil (NYSE:XOM) which trades for about 10 times earnings and yields 2.6%, or just about half of what BP offers in terms of yield.
Here are some key points for BP:
Current share price: $40.16
The 52 week range is $36.25 to $48.34
Earnings estimates for 2012: $4.95 per share
Earnings estimates for 2013: $5.20 per share
Annual dividend: $2.16 per share which yields about 5.4%
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.