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BP (NYSE:BP) produces roughly 3.8 million barrels of oil daily. It currently has 22,400 service stations around the planet. Its main division is BP America. It is actually the largest producer of oil and gas in America, and it is headquartered in Houston. The company currently holds roughly 18.07 billion barrels worth of reserves, much of which is in the Gulf of Mexico.

Valuation

I would recommend this company as an investment. One of the reasons is that the firm has a P/E ratio of 5.08. This number is lower than all its main competitors. In fact, the 2nd place company, Chevron (NYSE:CVX) has a ratio of 7.52.

Not only that, but the price to sales ratio is .33. This again is significantly better than its major competitors.

Two of the biggest competitors, Exxon Mobil (NYSE:XOM) and Chevron, have ratios of .87 and .86, respectively. These are nearly three times as high. Two of the others, Total (NYSE:TOT) and Royal Dutch Shell (NYSE:RDS.A), have rates of .46 and .43. However, BP only has a 6.33% profit margin, which is quite low. In fact, the only competitor with a worse profit margin is ConocoPhillips (NYSE:COP), who has a rate of 5.25%. BP has $235 billion in revenue, with a gross profit of $65.75 billion. However, it does have $4 billion in cash and $32.5 billion in debt.

The company gave out a dividend of $3.63 billion in 2011. This was roughly 4.5% of the firm's market capitalization. BP has been known as one of the top dividend producing stocks for quite some time, and it continued this reputation last year. Overall, this company is a decent buy. Its revenue has increased from $246,138 in 2010 to $386,463 in 2012, so it is definitely heading in the right direction.

The main reason BP is such a good purchase is that the market capitalization of $67.84 billion is significantly lower than the enterprise value of $96.84 billion. This means there is plenty of room for growth.

In the news

Unfortunately, most of what is being said about BP today is negative. It is obviously notorious for the Gulf of Mexico oil spill in 2011. It has been doing a great job of cleaning that up and restoring its image and profits. However, recently unreleased pictures from the 2010 spill reveal pictures of marine life affected by the spill has created some new negative backlash against the company. The pictures were provided by Greenpeace.

The images give people are more real life image of what occurred because of the oil spill. When the spill was actually going on, there were plenty of pictures of animals being scrubbed clean and released, but few of the dead animals portrayed in the latest images.

The company also recently agreed in March to pay roughly $7.8 billion dollars for damages related to economic loss, property damage, as well as injuries that occurred during the cleanup. Other than the continued cleanup expenses, it is pretty much over the worst of the oil spill. In a move that could help to repair its image, the firm recently announced it has come up with a 500 ton spill containment system. This can be installed in any deepwater spill in the company's facilities around the globe within just 10 days.

The idea is to redirect leaking oil and gas from the deepwater wells to the pipelines that go to the surface. The equipment demonstrates how critical these deepwater reserves are for the company.

Conclusion

There are a couple reasons that I would recommend BP for investment. First of all, the stock is about as low as it's likely to get. Right now it is only $39, but it was at $48 as recently as last year. One of the reasons for the lower prices is the reduced production after selling some of its assets to cover the costs of the spill. However, the refining profit margins should return to normal shortly. Also, the worst of the firm's expenses related to the oil spill is behind it. Soon, the financial hit and the negative public perception will clear up, and the profits should then start rising.

Also, it is known as being one of the top dividend paying companies. The dividend payout right now is around 4.5%, and it consistently pays out in that range. It is among the best dividend yielding stocks out there. However, the main reason it would be a good to purchase BP is that most of the major oil stocks are going for roughly 8 times the firm's earnings. BP is only selling for 6 times its earnings. This means it could be undervalued.

This is also evidenced by the fact that the market capitalization is only around 70% of the enterprise value. When you combine this with the company's solid balance sheet, this means that the stock price should soon start rising.

One thing I don't like is that the company does not seem to be taking many proactive steps to increase the American division's drilling campaigns. One of the reasons might be the fact that it pays out such a large dividend. The company seems to prefer spending its excess capital on dividends than aggressive future oil prospects.

However, assuming the firm's strong profits continue, this is not a major issue. If you want a solid dividend producing stock that will continue to perform well, this is a good stock for you.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 3 New Reasons To Buy BP At $38