BP (NYSE:BP) has faced ones of its worst phases ever in 2020. In fact, BP stock is facing multiple crises.
First, the year kicked off with a global pandemic and an oil price war. Then, the situation worsened with the rising determination to fight climate change. When it comes to global warming, oil and gas are the big bad guys. Even as electric car stocks shot up in value, BP got slammed.
However, since the end of October, the company has changed that narrative — slightly. Now it’s up 48% from its 52-week low. That has investors wondering if it’s time to jump back in.
Yes, the stock is still cheap. Even after six weeks of gains, it’s not far off from the prices it left back in 1995. That’s tempting. But you’re just as likely to get burned.
If you’re looking for cheap stocks to buy with real growth potential, there are plenty of names to choose from. When it comes to the oil and gas sector, though, I would stay away.
Will Future Trends Work in BP Stock’s Favor?
If you are betting that BP shares will continue to recover in value, you are betting on a lot of things going right for the company.
For one, you’re betting that with the new Covid-19 vaccine, business travel will pick back up and the work-from-home trend will be abandoned.
I wouldn’t take that bet. Some will return to work, but many companies are planning to let at least part of their workforce continue working remotely. The pandemic has shown companies that, in many cases, business can be conducted effectively over video. I think they’ll be reluctant to resume the expense of business travel unless absolutely necessary.
Second, you are also betting that oil and gas demand will bounce back. Even BP thinks that we may have already passed the point of peak oil consumption. So, I’m not sure that a return to higher oil and gas prices is possible.
Third, though, you are probably betting on BP’s new commitment to renewable energy with a plan to reduce its dependence on fossil fuels. That has some potential, but it’s far from a slam dunk. To shift its business to green efforts at any scale is going to require huge upfront costs. Projects like these are expensive. Plus, BP will be a newcomer competing against green energy companies that have been focused on the business for decades.
At the very least, this all puts some major roadblocks ahead for the company.
Currently, there is no shortage of investment analysts who are bullish on BP stock. Among the 29 tracked by CNN Money, 13 rate it as a buy. Additionally, analysts estimate a 12-month median price target of $26.26. That’s over 20% upside. But with all due respect, that’s not my position.
Right now, BP stock earns an “F” grade in my Portfolio Grader. Shares in the oil and gas giant have been recovering from their late October low, but there is still so much risk there. Don’t forget, as bad as March was for oil and gas stocks, BP closed on Oct. 28 at $14.90, significantly lower than any other point this year. And that was despite the company unveiling a new strategy promising relevance in the post-oil world.
So, BP is caught between low oil and gas prices, a strong likelihood of stagnant if not declining demand and the rising tide of clean energy. In addition, the pandemic has changed behaviors that traditionally drove a large part of fuel consumption — activities like business travel and commuting. Those changes may be permanent.
Bottom line? There are simply too many uncertainties ahead for my tastes. If you already own shares, now is not necessarily the time to sell your stake. But I sure as heck wouldn’t be investing in the company, even if BP stock has pieced together six weeks of gains.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.