It’s certainly not the most obvious move at this point, but that is precisely what makes buying BP (BP) such a compelling move right now.
It’s called being a contrarian, and it is quite an effective strategy, especially when investors are moving like pack animals into and back out of certain stocks or sectors.
Now that interest rates have risen, the market’s fear level has ratcheted up, making most investors too scared to do anything but what they’re told by the talking heads in financial media.
That is why it’s the the perfect time to do something completely contrary to what the herd is doing — buy energy.
BP Stock Is Fighting for Control
It’s true that OPEC is trying to regain control of the oil industry by forcing U.S. and Russian shale producers out of the market by over-producing. Plus, the global economy is still weak and emerging markets are still contracting more than they’re expanding. But, we are much closer to a bottom than top in these markets, and I am not a lone voice in the wilderness. Howard Weil, respected BP analyst at Scotia Bank has just gone on record with a 38% upside price target for BP.
While he’s certainly an outlier, the prediction isn’t surprising. BP is only off 17% for the year, and with a 7.6% dividend, that loss is reduced to a single digit loss of 9.4%. That’s not bad, given the carnage in this sector.
BP generates enough cash to keeps its dividend stable for the coming quarters and with most of the bad news baked in, BP looks like it’s very near the bottom of its range, near the bottom of the sector.
Also bear in mind, Chevron (CVX) is off around 14% (less its dividend) and giant ExxonMobil (XOM) is off about 11% for the year, less dividends. There is something even the Street sees in BP that it doesn’t see in its rivals.
BP Has Long-Term Potential
There are strategic long-term opportunities that BP is continuing to pursue that will pay off as global demand comes back on line. For example, BP is significantly expanding its natural gas exposure, particularly its drilling in Egypt in the Atoll field and in the West Mediterranean Deepwater Concession.
These are the kind of visionary ideas that make BP unique. While BP already controls 30% of Egypt’s natural gas market, it’s not just the populous North African nation that is BP’s target.
By consolidating natural gas interests in Egypt, it has natural gateway for shipping natural gas to Europe as well as Asia, where prices are significantly higher. It wouldn’t be surprising that, over the long term, BP will likely look to build a distribution network into other energy-starved African nations.
The point is, BP has gone out looking for opportunity at the worst possible time, which is the kind of contrarian thinking that makes it attractive. But, it has done this without sacrificing stability. Management has cut costs, sold projects and resolved its Macondo Gulf of Mexico spill.
BP has grown some roots, which is important to stay competitive in today’s environment.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
