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I think the BP share price is only just getting started

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A plant pipetrack at BP's Hull Petrochemicals site
Image: BP

The BP (LSE: BP) share price has been an outstanding performer over the past year. The stock’s returned 55%, excluding dividends, over the past 12 months. By comparison, the FTSE 100 has added just 18%, excluding dividends. 

I think this is a sign of things to come. That’s why I’d buy BP shares in October, ahead of what I believe could be a significant rally. 

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Growth potential

Over the past few months, the BP share price has powered higher off the back of rising oil prices. It took a while for investors to wake up to this growth. Between March and the middle of September, shares in the oil giant were effectively treading water.

However, during this period, the price of Brent crude added around 15%. BP even announced a bumper set of first-half results and unleashed a share buyback. 

Now that the oil price has returned to more than $80 per barrel, a multi-year high, it seems as if the market’s finally taking notice. 

Even though the market’s overlooked the company for the past few months, that doesn’t mean its fundamentals haven’t improved. BP’s first-half results showed a substantial increase in profitability and sales.

And based on the current oil price rally, I don’t think it’s unreasonable to say that the company could report a robust set of third-quarter results as well.

While it’s impossible to predict what the future holds for commodity or equity prices, it seems economic growth and a lack of supply are both working to push oil prices higher. It will take some time for new supply to come to the market, which suggests oil prices could remain elevated. 

This should help drive the BP share price higher over the next few months. 

BP share price risks

Despite the company’s potential, this stock may not be suitable for all investors. The oil and gas industry is under immense pressure to reduce emissions, and the sector’s starting to face legal challenges regarding related issues. 

Moreover, commodity prices can fall just as fast as they can rise. Just because oil prices are above $80 a barrel today doesn’t mean they’ll remain above this level. 

Despite these risks, I think the BP share price has tremendous long-term potential. I’m also encouraged by the group’s track record of returning its profits to investors. 

As mentioned above, BP announced a $1.4bn share buyback alongside its second-half results and boosted its dividend. After this increase, the stock supports a dividend yield of 5.8%, although this distribution isn’t guaranteed. If the price of oil suddenly falls, the company may have to revisit its payout ratio.

Nonetheless, considering its income and growth potential, I think the BP share price is a desirable investment at current levels. That’s why I’d buy the stock. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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