Time to go long on BP??

[michael]

In the past two months BP has lost 50% of its valuation dropping from around $60 in mid April and is about $32. In the same time Chevron and Exxon have only taken a 10% fall and Total and Shell only about 20% so to me it seems people are just very scared of BP due to the uncertainty over fixing this leak and have panicked and in the bear irrationally wiped $100bn off its value.

I have seen suggestions that BP will cut its dividend by up to 50% which has contributed to its fall in value however from what I have read it's liability from this disaster will be limited by law and considering it has nearly $7bn cash on hand (in addition to the cash held by other liable parties like Transocean and Halliburton) it would seem BP not be in a better position for dealing with the financial aspect of stopping the leak and cleaning it up.

Being an optimist I would almost be ready to take a long position and hold onto BP stock until it heads back towards the $60 it was trading at before the leak however I am well aware of people predicting a far more dire future for BP.

In the short term if they announce they will have to cut the dividend will the stock drop further or has it already been discounted to reflect this fear?

In the longer term if there is a strong short term movement against offshore drilling will this affect BP shares or will its operations in Venezuela, Canada, the North Sea, Europe and Asia serve to protect it against decreased productivity in the gulf region?

With regards to the suggestions that BP will go bankrupt and be taken over due to its liabilities which some have predicted will amount to tens of billions does anyone have any thoughts? Exxon after the Valdez disaster as we all know was in a similar situation but ultimately escaped without having to pay its liabilities in full and thrived and given that liability is also likely to be shared by Halliburton and Transocean are fears of bankruptcy an overreaction?

I am interested in hearing any thoughts on BP stock as along position at this current time.

Thanks,
Michael.

 

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[GlobalWealth]

I have been selling put options on BP with strike prices ranging from $20-$35/share.

 

[NoMoneyDown]

I'm not too knowledgeable when it comes to oil stocks, but I would think putting some skin on the OTHER oil companies (e.g., Shell) that have dropped a lot may be something to consider. That is, unless people are skiddish about some pending/future legislation that will curtail their bottom line.

 

[fredtech1]

I would wait till all the crap clears and if BP is still in business go4it.

 

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[ITA]

I have been thinking about that very same thing for the last 2 weeks.

Be aware that I'm not a stock expert by any stretch, and I tend to invest long-term and based on trends, not short-term technical moves.

Here is my reasoning:

BP is now at half of what it was in January - when it was at the same level as Shell. And it was only catching up to Shell at that point, digesting a lot of acquisitions that happened in the previous decades. It had upward potential and still does in terms of operations.

Oil companies make way more profit when the price of oil goes up. IMO and in the opinion of most economists oil is bound to go back to 100+ and more due to Peak Oil in the next couple of years.

People are scared because they hear about tens of billions in clean up costs, but this is a company that has 25+ billions profits a year. It can pay this off.

I'm not buying now though, for 2 reasons:

1. the oil hasn't reached the beach (not in a big way, that is), and when it does, the media frenzy will go overboard and the stock will go further down.

2. another possibility is that they will have to cancel their dividends for this year due to political pressure, which would also send the stock down. If that happens I believe it will be announced this month (when the oil reaches the beaches and the indignation is at its peak). That would be the right moment to buy, near the bottom.

It seems to me that BP is bound to go back to 60 at some point. Maybe not 2011, but then 2012, or 2013 (my gut feeling is end of 2011, early 2012). It could in fact get over 60 if you hold long-term. Doubling up your money or more in 12 to 36 months isn't a bad deal.

Thoughts?

 

[michael]

I'm not too knowledgeable when it comes to oil stocks, but I would think putting some skin on the OTHER oil companies (e.g., Shell) that have dropped a lot may be something to consider. That is, unless people are skiddish about some pending/future legislation that will curtail their bottom line.

Not a bad suggestion but in my view the oil spill has not really affected Shell, Exxon, Total and others to the same extent as BP. They have all fallen only 10-20% and I think the Greek crisis last month had more to do with this fall then fears for the oil industry due to the leak,

I have been thinking about that very same thing for the last 2 weeks.

Be aware that I'm not a stock expert by any stretch, and I tend to invest long-term and based on trends, not short-term technical moves.

Here is my reasoning:

BP is now at half of what it was in January - when it was at the same level as Shell. And it was only catching up to Shell at that point, digesting a lot of acquisitions that happened in the previous decades. It had upward potential and still does in terms of operations.

Oil companies make way more profit when the price of oil goes up. IMO and in the opinion of most economists oil is bound to go back to 100+ and more due to Peak Oil in the next couple of years.

People are scared because they hear about tens of billions in clean up costs, but this is a company that has 25+ billions profits a year. It can pay this off.

I'm not buying now though, for 2 reasons:

1. the oil hasn't reached the beach (not in a big way, that is), and when it does, the media frenzy will go overboard and the stock will go further down.

2. another possibility is that they will have to cancel their dividends for this year due to political pressure, which would also send the stock down. If that happens I believe it will be announced this month (when the oil reaches the beaches and the indignation is at its peak). That would be the right moment to buy, near the bottom.

It seems to me that BP is bound to go back to 60 at some point. Maybe not 2011, but then 2012, or 2013 (my gut feeling is end of 2011, early 2012). It could in fact get over 60 if you hold long-term. Doubling up your money or more in 12 to 36 months isn't a bad deal.

Thoughts?

I am in a similar situation to you in that I don't have the time or inclination to learn and deal with options and regular trading but prefer to put my money into long term value stocks.

Thanks for your input I agree with what you said about holding off for a little longer I will keep an eye out for news of the oil hitting the shores of Miami and other states because like you said this will open up the floodgates on another huge number of compensation claim and fear driven selling.

 

[moop]

It's been a while since I've toyed with options, but would an options straddle be advisable for BP or is the implied volatility too high?

 

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[GlobalWealth]

It's been a while since I've toyed with options, but would an options straddle be advisable for BP or is the implied volatility too high?

I wouldn't do a straddle just because I think there is big upside potential here. It seems most of the bad news is baked into the stock price and in reality, the company can easily afford the clean up cost with just over one year's pretax profits. A straddle will limit your upside. I am selling puts in the $20-35 range for income. Because of the volatility, the option premiums are very high right now.

 

[ITA]

"BP's stock is trading at just 5.5 times analysts' consensus estimate of the company's 2010 earnings per share, compared with a multiple of 9 times for shares of Royal Dutch Shell, BP's closest competitor."

Is BP Stock a 'Buy' Now? Investors Review the Scenarios - WSJ.com