BP plc and this growth monster could make you stunningly rich

Harvey Jones says BP plc (LON: BP) and this top engineering company are a great way to play rising energy prices.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

I have kept one eye open for Glasgow-based hydraulic pump maker Weir Group (LSE: WEIR) ever since I almost bought it five years ago, and it has endured a bumpy ride since then. However, it is rising today, the share price up 2% on publication of its full-year results for the year ended 31 December.

Weir strong

The results are headlined Delivering strong growth and strategic progress” and included a 20% rise in group orders as demand for its technology and services increased in its main markets. Profits before tax rose 47%, driven by excellent growth and operational leverage from oil and gas.

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Weir is benefitting from the oil price resurgence and increased activity in US shale, which has boosted demand for its drilling and fracking equipment. Oil and gas orders increased 67% last year, with North American upstream increasing a whopping 82%. Return on capital employed increased 290 basis points.

Digging deep

Investors will also have been buoyed by this line from CEO Jon Stanton: Looking to 2018, assuming market conditions remain supportive and despite anticipated foreign exchange headwinds, we expect to deliver strong revenue and profit growth and further balance sheet deleveraging. 

Stanton said the industrials group has worked closely with customers to identify opportunities to increase their productivity and invested early to take full advantage of improving conditions. This drove order momentum in its minerals operation, which delivered consistent growth in its high-margin, cash-generative after-market, and positioned it decisively for the anticipated upturn in the mining capital cycle. Its oil & gas operation took full advantage of improving markets in North America.

The £4.57bn company’s forward valuation of 16.9 times earnings now looks relatively undemanding, given today’s success, while its PEG is just 0.4. City analysts are pencilling in 39% earnings per share (EPS) growth for 2018, and 15% in 2019. Current yield is 2.4%, covered a healthy 2.5 times. My Foolish colleague Peter Stephens reckons it is a buy. Nothing more to add except a cheery: Here Weir go.

Buy BP

Oil and gas giant BP (LSE: BP) has also had a bumpy few years due to the fluctuating oil price, although it has also suffered a few embarrassing personal problems. The share price is slowly getting out of deep water, even if the last month has been bumpy. Brent crude at $70 a barrel was a turbocharger, although it may get little further support from that corner as energy prices slip.

RBC Capital Markets still reckons BP is set to outperform after the last year of transition, due to its growing upstream base and favourable dynamics in the downstream, the latter of which “may be under-appreciated by the market”.

$30 oil

My Foolish colleague Rupert Hargreaves is more than appreciative, recently naming BP the buy of the decade. With management driving down its break-even point to $47 per barrel last year and targeting somewhere in the $30s, BP could continue to pump out the profits even if the oil price plunges again.

The £95bn energy behemoth trades at a forecast valuation of just 15.1 times earnings, good for a company with such major prospects. Its EPS are forecast to rise a whopping 156% this year. The yield is 6.1%. If BP is not in your portfolio, you must really hate oil companies.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended BP and Weir. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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