With all the panic and uncertainty surrounding this company it is easy to see this as a reason to cut your losses. The company has a major castastrophe on there hands with the oil spill in the gulf.
How high could the fines and penalties go? Will they go bankrupt?
Is the dividend doomed?
Will they make a movie starring Bruce Willis about BP?
Here is my take on why BP is gonna make you some mad money if you Buy,Buy,Buy
(With apologies to Jim Cramer could't help my self.)
1. Annual Cash Flow of 27 Billion
Thats not a typo this company produces a ton a of FCF and even if they pay 40 billion in Liabilities which I highly doubt it will likely be spread over several years.
2. Debt to Equity around 30%
if they need to borrow they could and it would not even make a dent on them financially.
3. Dirt cheap valuation
At the moment BP trades for around 4 times earnings and less than 3 times cash flow and less than book value.
4. Plenty of cash on hand
They currently hold about 7 billion in cash thats a nice short term cushion against any potential damages.
5. The spill is contained
As many 15,000 barrels are being pumped out and most of the leak is projected to be contained by july.
To me it looks like a dirt cheap stock which has been overpunished by panic selling and the assumption of outrageous liablity claims.
Does BP look cheap to you? Let me know in the comments.
Disclosure Author is long BP shares
Disclosure: Author Is Long BP