It could be a great time to add BP to your portfolio, if you havent done so already in recent times. You could pocket a 10% pre-tax return by the end of June.
The oil giants long-term prospects are appealing, too, based on fundamentals, trading multiples and macroeconomic trends.
Clean Water Act
BP will face Clean Water Act fines for its Gulf of Mexico oil spill of up to $13.7 billion, less than a maximum of $17.6 billion it could have been fined, Reuters reported late Thursday. That wasnt entirelyunexpected, to me at least.
So, Friday turned out to be a very nice day of trading for BP shareholders, with the stock up more than 5%. The upside could be greater, though the shares should easily trade higher than 500p, based on BPs equity fair value, for an implied upside of more than 25% from their current level.
Is it time to buy and add up to 5% of BP stock to a diversified portfolio?
I think so.
Time To Build Up
Last week was a busy one for oil majors, oil investors and suppliers.
Good news for BP shareholders on Thursday came on the daythe US reported weak economic data, while OPEC said it had boosted production in December, which inevitably sent oil prices sharply down. In the UK, a review aimed at identifying risks to oil production was launched following the collapse in oil prices, it also emerged on Thursday, when BP and ConocoPhillips stated their intention to cut hundreds of jobs in the North Sea.
Across the Atlantic, oilservices andequipment provider Schlumberger also announced on Thursday it would get rid of 9,000 workers just less than 10% of its global workforce.
Surely, the bottom for the equity valuations of most oil companies must be around the corner and what a better opportunity than BP to add exposure to the oil sector right now?
Oil Prices And Value
Uncertainty related to the outcome of the oil spill in Mexico still weighs significantly on BPs valuation, but latest news is encouraging, and supports the investment case.
Brent crude oil rose more than $2 a barrel on Friday after the International Energy Agency (IEA) said oil prices could fall further. But they may recover, the IEA added, as production diminishes in some parts of the world, such as North America.
I reckon a 50% rise inBrentcrude oil to around $75 a barrel shouldnt be ruled out in the next 12 months. And even if oil prices dont rise as fast as I expect, I wouldnt worry: BP remainsa compelling investment, particularly if it properly manages its vast portfolio of assets.
As I argued in late November, when BP traded at 448p (some 8% higher than its current level of 414p), BP is a long-term investment that could yield market-beating returns. It has changed a lot inthe last two decades, and a smaller asset base which, along with cost-cutting, is top priority for management would further help it deliver plenty of value to shareholders.
BT is also a solid dividend play, just like the three companies mentionedin our latestFREE report, which is available for a limited amount of time,and comes without further obligations. These value candidates are rather cheap andcould offer hefty capital gains and an appealing yield in the next 24 month!
One of thepicks trades at a 20% discount to fair value, and offersa forward yield north of 4%: thisis also a defensive bet in a volatile market! If youare looking for strategic investmentsthis year, don’t waste time: find out more about our value candidates —you are just one click away!
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.