Is BP Stock A Buy?

BP plc (NYSE:BP) is a multinational oil and gas company based in London and formerly known as “British Petroleum.” Like the rest of the oil industry, BP’s stock price plummeted when travel restrictions were enforced. It bottomed out at $14.74 per share from a 52-week high of $40.08.

Within months, the share price bounced back significantly, so is BP stock a Buy?

As optimism increases that the economy will re-open, BP is benefiting. Like the overall market, the company’s latest gains are tied to hopes that vaccine announcements from Pfizer (PFE) and Moderna (MRNA) will be justified.

While hopes for a vaccine have given investors a strong signal that the economy would return to normalcy soon, it’s unclear how soon that will happen; travel volumes are still well below historic levels. 

Here’s what we know about this long-standing oil company from across the pond and what might re-ignite profitable business growth.

BP Is One Of 7 SuperMajor Gas Companies

BP is one of the seven “supermajor” gas companies in the world. It has operations in nearly 80 countries around the globe and has listings on the London Exchange, Frankfurt Exchange, and New York Stock Exchange. The company is over a century old, having been founded in 1909, and is among the world’s largest companies.

Brands and subsidiaries include AMPM, Castrol, Aral, Amoco, and Wild Bean Café.

The company’s revenue and stock price were impacted when demand for oil products were crushed due to international travel restrictions.

But it’s not the first time its stock nosedived. It also crashed in 2010 amid the Deepwater Horizon oil spill in the Gulf of Mexico. It’s the largest oceanic oil spill in history, and cost the company an estimated $18.7 billion settlement payment with the U.S. government in 2015.

BP was on the verge of recovery when oil prices crashed, putting its stock prices at its lowest since 1994. This could represent a bargain for bullish investors who believe fossil fuels, and BP in particular, can increase profits as companies like Tesla (NASDAQ:TSLA) and Nikola (NASDAQ:NKLA) push for an all-electric future.

Is BP Stock A Buy?

BP market capitalization has been bobbling around $70 billion for a while. Its share prices of $20-$25 are higher than the 52-week low of $14.74 but still half the 52-week high of $40.08. Even that high price is well below the $75-$80 price range it traded at in 2006, and a lot happened in those 14 years.

Still, the company’s third-quarter 2020 earnings report saved it from a summer nosedive at the peak of the pandemic. It lost $6.7 billion in the second quarter but squeezed out a $100 million net profit by the third quarter.

It’s a far cry from the $2.3 billion profit in 2019’s third quarter, but that can be attributed by the slowdown in travel that affected multiple industries.

Britain’s crude oil barrel prices crashed just like the U.S., although it didn’t dip into the negatives. This created razor-thin margins across the globe, but never forget that oil is a finite resource. It’s backed by a very real natural resource that is nonrenewable. As oil supplies reduce globally over time, basic economics would suggest that prices will rise long term, but BP still carries risk.

Will BP Stock Fall?

The biggest risk to the oil industry is alternative fuels, although market crashes aren’t helping the company either.

As the world lessens its dependency on petrochemicals, demand is expected to go down, but it’s unlikely to fully go away for the foreseeable future. Of course, fossil fuels aren’t the only things the company does.

BP also has alternative energy investments, along with a global supply chain network and technology behind it. Its gas stations and convenience stores are filled with a variety of products, and it even has its own café brand.

On top of this, crude oil isn’t just refined into gasoline for cars and airplanes – it’s also used as a lubricant in a variety of machinery applications.

While the world could certainly shift toward an electric future with cars and houses running on solar and wind, oil will still be necessary. From keeping wind turbines lubricated to providing backup power in hybrid vehicles, oil is a staple that may have its day in the sun again.

A fly in the ointment when that bright day comes is debt. BP has a massive debt load that it needs to unburden before it can rise with the rest of the oil industry.

BP Stock Vs Competition

BP has a strong presence in Europe and North America, but it also has fierce competition.

Rivals like Chevron (CVX), Exxon Mobil (XOM), Shell (RDS.A), and Valero Energy (VLO) are facing many of the same problems. However, some of them have less debt burden because they didn’t get hit with massive bills over the past decade for the world’s largest water-based oil spill.

Exxon Mobil’s 1989 oil spill has long been forgotten by the public, but Shell still gets some brand heat. Negative sentiment about oil companies in general is arguably waning, and each of these companies will be racing to compete for a larger share of the pie when the economy returns to normal.

Inflation alone from massive Federal Reserve stimulus could be a boon for oil companies that are intrinsically linked to the price of oil.

The challenge for investors is we don’t yet know what normal will look like. With so much virtual work available and unemployment still high, many people may eschew travel through the winter as the coronavirus spreads globally for round 3, backed by the flu season. 

Is BP Stock A Buy? The Bottom Line

BP is a massive British oil company with assets around the world. It had a tough decade in the 2010s that was only accentuated by when the pandemic resulted in travel shutdowns.

The company experienced massive losses in the second quarter it barely managed to dig out of by the end of the year. However, everything’s not all right yet.

Should the company be able to unburden itself of debt, it represents a value to investors. BP could outperform the overall market over the next five years. But U.S. oil futures and other oil-related investments are likely to outperform this one.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.