BP PLC (BP) shares have endured a near perfect storm for the past few years. First there was the financial crisis, then the oil spill in the Gulf of Mexico, and now, a European debt crisis that has put pressure on almost all European stocks like BP, as well as the price of oil which has seen a sharp drop in May. Investors who have a long-term outlook could easily be wishing they picked up some shares of this stock because historically, major gains can be made when buying solid companies when few investors are interested in the stock. Here are a few reasons to consider buying BP now:
1) BP is highly profitable even while it is still paying claims and expenses related to the oil spill in the Gulf of Mexico. It seems that the company has taken strong steps to resolving the issues and the expenses and claims appear manageable. For the first quarter of 2012, the company reported a profit of $1.52 per American Depository Share. This was below the $1.76 per share earned in the same period last year, because of weak refining margins and lower production due to asset sales. Still, when you consider the company is earning about $6 per share annually, the stock looks cheap. Plus, as time passes and claims are resolved, earnings could be even higher.
2) BP looks cheap based on the fact that it trades for about 6 times earnings while the average stock in the S&P 500 Index trades for around 13 times earnings. It is also trading for close to book value, which is $37.27 per share. Many other major oil stocks trade for 8 to 10 times earnings, and at a large premium to book value. Based on these metrics, it looks like investors are discounting BP shares to unreasonable levels.
3) BP offers one of the best dividend yields at over 5%. Plus, it recently raised the dividend and it has room for more dividend increases because the payout ratio is below 30%. This is based on earnings estimates of over $6 per share and a dividend of $1.92 annually. Investors who buy now will be well-rewarded with BP's generous dividend, while waiting for a higher stock price.
4) BP plans to grow exploration and production substantially between now and 2015. It has major projects in emerging market countries like India, Brazil and Russia. It also could be one of the most safety-conscious oil companies in the world today, as it has added redundancy and other risk prevention methods due to the tough lessons it learned from the oil spill. When you evaluate this company and stock valuation, it's easy to see why the stock offers real value now. Just a few weeks ago, BP shares were around $48, and now can be had for just about $38.
Here are some key points for BP:
Current share price: $38.20
The 52 week range is $33.62 to $48.34
Earnings estimates for 2012: $6.35 per share
Earnings estimates for 2013: $6.46 per share
Annual dividend: $1.92 per share which yields 5.1%
Chevron Corporation (CVX) shares could be one of the best values for a major U.S. based oil company, but it still is more expensive than BP. Chevron shares offer a lower yield when compared to BP, plus it trades for a considerable premium to book value which is $63.61 per share, while BP trades right around book value.
Here are some key points for CVX:
Current share price: $99.48
The 52 week range is $86.68 to $112.28
Earnings estimates for 2012: $13.41 per share
Earnings estimates for 2013: $13.50 per share
Annual dividend: $3.60 per share which yields 3.6%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
