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Sun. Jul 14th, 2024

An 8% drop in one month! The BP share price is currently screaming ‘buy, buy, buy’ to me

By Vaseline May26,2024

Image source: Getty Images

The BP (LSE: BP) The share price has had a bumpy month, falling 8.37%. I’ve been wondering if I can get the FTSE 100 I have been adding oil and gas giant to my self-invested personal pension (SIPP) for months, and after the dip it is screaming at me to take the plunge. Should I dive in?

I have a problem. I only have £3,000 cash left in my SIPP. So if I buy BP stock today, it means rival targets are being put on the back burner, like HSBC Holdings And Rio Tinto.

That means I really, really need to be convinced by BP. There is certainly much to tempt me today.

FTSE 100 favourite

Many investors consider BP a core portfolio, but natural resources stocks can also be highly cyclical as demand waxes and wanes with the global economy. So in my opinion it makes sense to buy them when they are down, rather than up. However, that also requires the patience to sit back and wait for them to recover. Or sit tight as they slide along.

BP shares soared with oil prices after Russia invaded Ukraine, but have fallen as the energy shock subsides. Crude oil is now at a three-month low as the uncertain global economy impacts demand and fears of direct conflict between Israel and Iran ease. Today, the stock looks super cheap at just 6.97 times earnings. That compares to an average valuation of 13 times for the FTSE 100 as a whole.

A disappointing set of profits in the first quarter further dented sentiment, with underlying replacement cost profits falling to just $2.7 billion from $5 billion a year ago. Still, that didn’t stop the board from announcing another share buyback, worth $1.75 billion.

BP shares are down 0.72% in one year, and 11.29% in five years (but with plenty of peaks and valleys in between). That certainly appeals to me. While it is no guarantee against further declines, it does reduce the risk of another decline if I buy today.

This stock is hard to resist

Where the oil price will go next is anyone’s guess. OPEC+ maneuvers, geopolitics and whether we get an economic soft landing will all play their part, along with a host of uncertainties. I think there is a chance that the economy will recover once interest rates start to fall and activity picks up again. The problem is that we still don’t know when that will be. Ironically, a lower oil price could support BP in the longer term by discouraging investment in renewables.

BP has adjusted its climate targets, which may reduce risks and costs in the short term but could expose the risk if rivals pioneer clean energy breakthroughs. It is at the mercy not only of oil price declines, but also of politicians who impose windfall taxes when profits rise.

Yet the company is still making enough money to maintain dividends and share buybacks until the next oil price peak. A rising interest rate of 4.98% in 2024 and 5.03% in 2025 is the big draw here.

At its current low valuation, BP shares are screaming ‘buy me’ in my face. If I had enough cash, I wouldn’t have to hear that twice. Instead, I have a choice to make and I haven’t made it yet!

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