In my view, BP (LSE: BP) (NYSE: BP.US) is one of the most appealing stocks in the FTSE 100. Clearly, its future depends to a large extent on the price of oil, with it being an external factor that BP has little or no control over. As such, its future financial performance is likely to be volatile, but now appears to be an excellent moment to buy a slice of it.
Growth At A Reasonable Price
A key reason for this is that BP offers strong growth prospects at a very reasonable price. For example, it has a price to earnings growth (PEG) ratio of just 0.5, which indicates that there is a very wide margin of safety currently included in its share price. This means that, even if there is a pullback in the price of oil which leads to write downs in the value of BP’s asset base, its share price performance could still be relatively impressive. And, with BP’s shares still being held back by uncertainty regarding Russian sanctions and the continued compensation payments for the Deepwater Horizon oil spill, for long term investors they represent a superb buying opportunity.
Of course, the resources sector offers a number of other companies which could provide generous upside over the long run. And, with BP’s cash flow and financial standing being so strong, pairing it up with a smaller resources peer could be a sound move – especially if that smaller peer has a very bright long term future.
One such company is Amur Minerals (LSE: AMUR). The market was caught rather off-guard in some respects by its recent announcement that it had been awarded the licence at the Kun-Manie project in Russia. Since then, its shares are up by around 320% (in less than a month) and, at the time of writing, they are continuing their upward trajectory, being up around 10% today.
Clearly, valuing a stock such as Amur Minerals is very challenging. For example, it has net assets of just £20m, is a loss-making company and has a market capitalisation of around £160m. Furthermore, there remain considerable financing issues, as well as logistical problems (such as access to the mine, which is around 200 miles from the nearest railway line), with the new licence and Kun-Manie site. Furthermore, the Russian economy is enduring a challenging period, with further sanctions being a distinct possibility. However, the Kun-Manie project offers huge potential over many, many years and, in time, has the scope to turn Amur Minerals into a highly profitable business that posts excellent share price performance.
As such, pairing it with a resources major such as BP makes sense. Not only are you gaining access to a company with excellent, albeit highly uncertain, long term prospects, you are also buying into a stock that offers a very wide margin of safety and which provides relative consistency in a very unstable resources climate. Therefore, buying a mix of BP and Amur Minerals seems to be a logical move which looks set to pay off in the long run.