Stephen Bland gives the lowdown on his recent purchase of shares in BP.
Continuing my superlatives title theme from last week, I'm taking here a look at the very largest company by market capitalisation in the FTSE 100, BP
(LSE: BP)
. BP has a cap of around £122bn, somewhat ahead of second placed HSBC
(LSE: HSBA)
on £109bn and substantially in front of third placed Glaxosmithkline
(LSE: GSK)
on a mere £83bn.
Does size matter? For value players, sometimes it does, but not when we're talking this sort of size. I've said before that for a value play, other things being equal, I'd always prefer a larger cap to a smaller.
But that was meant to refer to the choice between a small or micro cap and a much larger share. However once we get into the area of all large caps, size is unlikely to figure as a distinguishing selection filter. That's because they all possess the traits common to this genre.
So why BP? Well definitely not just because it is the biggest of the big, that alone don't give it no value cred at all. For me, the big thing about BP is not its size but a modest forecast p/e of 10 and a not bad yield of 3.5%. These metrics are amongst the most attractive for the last few years that I've been able to check.
In fact, I liked it so much I bought the company recently, well a slug of it anyway, even I can't stretch to the odd £122bn. Which reminds me of that old joke, a billion here, a billion there, soon you're talking real money.
On top of the value appeal, BP looks like a crisis play because the shares have been performing poorly lately, especially when compared with rival Shell
(LSE: RDSB)
, on the back of some trouble in their Alaska field. Something about corroded pipes. I don't wanna know really because what I do wanna know is that this is forming into a classic crisis situation. The signs are there.
I think the shares have been treated too harshly by the events. Plus every little bit of other bad news on the company that would normally be buried and ignored is now being given prominence by the press. BP can't do anything right at present. Mmmm.
For the uninitiated, a crisis play occurs when a share, a big cap almost exclusively, is temporarily depressed because of some bad news that is over weighted by the market in the investor's opinion. Note that the last thing a crisis player seeks is a real crisis that permanently impairs the business. It is the phoney crisis that is the key to this. Doesn't happen all that often but when it does, money can be made if you get it right. However crisis plays are not necessarily always those trading on very attractive value ratings.
In this case though, BP has done the double as I see it. It is both a decent value play and it is showing crisis play signs too. I think it's too cheap.
And as it happens, right now it's as big as they come.
Stephen holds shares in BP
