Could BP (LSE: BP) (NYSE: BP.US)shares return to the 18-year low of 305p they hit in 2010, in the wake of the Gulf of Mexico disaster?
At the start of 2014, it might have seemed an unlikely idea but since then, BP shares have fallen by 25%, from almost 500p, to just 368p, at the time of writing.
During the same period, shares in Royal Dutch Shell have fallen by just 12%, so the events of 2010 are clearly still having an effect on investor sentiment towards BP, despite its generous programme of share buybacks and dividend growth.
Youre not being realistic
I admit that BP shares would need to fall by another 16% to reach 305p again, but this isnt necessarily as unlikely as it sounds.
Firstly, a share price of 305p would equate to a 2015 forecast P/E of 8.1, using the latest consensus forecasts for BP earnings. This isnt too unreasonable, given that these earnings are likely to be adjusted downwards again at some point in the next six months.
Secondly, BP faces other headwinds: 2015 should be the year when BP learns the size of the fine it will be required to pay under the US Clean Water Act.
This fine could be anything from around $5bn to $20bn, but following this years ruling that BP was grossly negligent in allowing the oil spill to happen, a fine towards the upper end of this range appears to be more likely than Id previously thought.
Finally, investors are nervous about energy markets: oil demand growth is slowing, and BP could be forced to write down the value of some of its assets in the light of lower oil prices.
BPs prospective yield is now over 6%, suggesting markets are pricing in the possibility of a cut to the firms very generous payout.
Is it time to buy BP?
At BPs current share price of around 370p, I believe it looks reasonably good value and would be a sensible long-term buy.
However, I dont think weve quite hit the bottom yet: contrarian investors who are willing to wait a little longer might be rewarded with a further drop in BPs share price that could make the oil major a screaming buy.
However, theres no doubt that the falling price of oil is going to make life tougher for BP.
In this uncertain climate, I reckon it would be wise to put some new money into companies that could benefit from the falling price of oil.
I’ve identified several potential buys for my own portfolio, and I’m pleased to say that three of these companies have also been selected for “5 Shares To Retire On.
This FREE, no-obligation report contains details of five blue-chip stocks hand-picked by the Motley Fool’s top analysts.
As I said, I expect at least three of these firms to benefit from lower oil prices.
To receive your copy immediately, click here now.
Roland Headowns shares in Royal Dutch Shell. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
