Is It Time To Invest In BP?

 

 

‘Be greedy when others are fearful, and fearful when others are greedy’.

Warren Buffet.

 

1.      The Share Price of BP Has Crashed.

 

It will be no surprise to anyone that the price of shares in oil giant BP (British Petroleum) crashed following the disaster in the Gulf of Mexico. It has been a catastrophe on many levels, for those who lost their lives, to the communities suffering as a result of the explosion and subsequent environmental damage.

 

To the investor who may have had shares in BP and didn’t sell before the price tanked, BP may seem like a no-go area, but you should reconsider.

 

The question is really how damaged is BP? At its new much lower price, does it offer potential upside value to the patient investor? Your view on that will largely be determined by your estimation of the cost of the disaster.

 

2.      Does BP Offer The Investor Value?

 

‘A billion here, a billion there, and pretty soon you’re talking about real money’.

Everett Dirksen – US Congressman.

 

The disaster in the Gulf Of Mexico is going to cost BP a lot, and not just financially. The already fragile reputation of the oil giant is in tatters in the US, and the President has made it clear that very significant damages will be applied to BP, likely to be many billions.

 

However, this is a company with vast resources making billions, and until recently, paying billions in dividends to its shareholders making BP a traditional favourite for pension funds and income investors alike (on both sides of the Atlantic). That is about to change as BP looks to suspend its dividend payments in an attempt to placate a hostile American administration, but how bad is it for BP?

 

Given all of the above bad news, it is worth remembering that this is still a vast company making a lot of money, and given the drop in the share price the risk to reward ratio to the potential investor has changed. It could be that the price of BP has now dropped to an irrationally low level, and may present upside potential at its current level. Maybe.

 

3.      Is It Time To Be Greedy?

 

Investing in an oil company, and especially BP, is a highly emotive subject at the moment, but if the investor examines the business dispassionately and rationally, at its current low price in a historical sense and despite its current problems, BP just might be worth considering.

 

The greatest superpower any investor could have would be the gift of hindsight, in the absence of which we must exercise our judgement based on a sound set of robust and intelligent investing principles, and of course a little luck.

 

At today’s prices, BP looks like it might be a value investment for the patient investor, if you have the stomach for it.

 

‘My formula for success?"......."Rise early. Work late. Strike oil.’

J.Paul Getty (1892-1976)

 

Jamie E Smith is the author of Making Money from Stocks and Shares

 

 

 

 

 

 

 

This content was provided by one of our users, Jamie