Which Wall Street Giant Is Right About BP Stock?

More than five years after a failed BP rig resulted in the largest marine oil spill in history, lawyers for the embattled oil company issued a statement to a federal appeals court, asserting that a refund is due on some of the payments made for economic restitution.

Which Wall Street Giant Is Right About BP Stock?

Contradicting the spirit of its conciliatory marketing campaign shortly after the Gulf oil spill, this latest action is a move only BP stock holders can appreciate. Even then, the hubris raises eyebrows, considering the delicate position of BP’s stock price.

BP stock is down slightly more than 30% over the past year, victimized by the persistent selloff in the energy and commodities sectors. Since the beginning of the year, BP stock is in the red by more than 17%.

Most of this year’s losses, however, can be attributed to the extreme volatility generated by the undercurrents of the broad market correction a few weeks ago, which saw BP stock slip 9% in August alone.

BP Stock: Two Arguments

On the one hand, the extreme reduction in the BP stock price convinced Oppenheimer & Co. Inc. analysts to issue a “buy” recommendation. On the other hand, Bank of America Merrill Lynch turned decidedly bearish, downgrading BP stock from “neutral” (a politically correct term if there ever was one) to “underperform.”

With two Wall Street giants on opposite ends of the table, who should investors trust?

Let’s take a look at the bullish argument. Although BP’s fundamental situation isn’t the greatest — as witnessed by sharply declining revenue — the company is still cash-rich relative to long-term liabilities and has a lot of assets that it intends to sell to stave off the implications of sustained volatility in the energy markets. Furthermore, BP stock hasn’t been this low since June 2010, smack-dab in the middle of the Gulf oil spill aftermath.

BP stock, technical chart
Source: Source: JYE Financial, unless otherwise indicated

But for anyone planning on buying BP stock, beware the cruelty of the oil markets!

Despite the company going on an envious seven-quarter earnings streak between the third quarter of fiscal year 2013 and Q1 FY2015, its stock went nowhere over the period, actually losing about a percent in value. A month following the recent earnings miss for Q2 FY2015, BP gave up 10% in the markets.

Nor should we ignore the utter lack of technical momentum, as bulls failed to inspire any confidence following the steep August selloff, outside of a few token trades that have thus far netted nothing. Currently, BP’s stock price is precariously perched at 15% below its 50-day moving average.

Obviously, Oppenheimer has a different view, and certainly, they are entitled to their opinion. But until there is a compelling reason other than the presumed “cheapness” of BP stock, investors may want to stay away from this gamble.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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