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Reasons To Buy, Hold And Sell BP Plc

BP (LSE: BP) (NYSE: BP.US) is one of the largest companies in the FTSE 100 and many private investors have differing opinions on the oil group and its prospects.

So here’s a quick rundown of the key reasons why you may wish to buy, sell or simply hold on to the company’s stock.

Buy

Demand for oil is high.  It has been so for a long time, and will continue to be high until the reserves start to dry out.  That’s probably a good reason to buy right there already, but BP seems to be a front-runner in alternative fuels, too.

In fact, BP has invested nearly $6.6bn in alternative energy since 2005, and is also the largest investor in bio-fuels in Brazil.  Proof indeed that BP is looking far and beyond its core oil resource.

Sell

Regrettably, forward thinking isn’t always the key indicator of a successful future.  You still have to take into account events that have happened in the past, and unfortunately, BP has still to find out exactly how much financial damage has been inflicted by the Gulf oil spill back in 2010.

The total compensation figure could possibly exceed $42.4bn, and BP is currently in a legal battle with the US over exactly how much should be claimed. 

While all this rumbles on, the share price has stayed rather volatile, jumping from 416p to 483p throughout the year.  It now sits at a ‘happy medium’ of 441p — almost exactly where it was this time last year.

While it’s not inconceivable that BP could win its courtroom battle — a move that would surely see another jump in the share price — weighing up how much damage a courtroom loss would do to the share price could convince investors to sell now, and potentially avoid a large future loss.

Hold

That said, there are reasons to stick around and wait out the court result. And for me, the best reason comes in the form of the excellent dividend. 

During the third quarter of last year, BP raised its dividend by 12.5% in order to reward very patient shareholders.  As it stands now, these shareholders get a very respectable quarterly payment of 9 US cents a share.

It’s also worth noting that in the past three sets of quarterly results, BP’s profits have beaten the predictions of analysts.  This potentially suggests that Gulf spill compensation aside, there’s still a lot to be said for BP’s seemingly solid financials.

What now?

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> Chris does not own any share mentioned in this article.