Should I buy BP shares for my portfolio today?

BP shares are up almost 8% year-to-date, as the price of oil continues to climb. Is now a buying opportunity? this Fool takes a look.

| More on:

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.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Over the past six months, the BP (LSE: BP) share price has risen an impressive 27%, and over a year it’s up 18%, currently sitting at 378p. While this has meant some healthy returns for investors, it’s still a way off of the pre-pandemic share price. That being said, with the price of oil closing in on the $100 mark, are BP shares the next growth opportunity for my portfolio today? Or should I steer clear of the UK oil and gas giant? Let’s take a closer look.

The bull case for BP shares

BP released its 2021 full-year results on February 8. The $12.8bn profit figure stood out immediately to investors, and the share price rose over 4% in the days after the release. By comparison, in 2020, BP saw a $5.7bn loss, the latest figure highlighting the turnaround for the firm. It also announced it had reduced net debt for the seventh consecutive quarter. In my eyes, both these factors highlight the managerial strength of the business, which encourages me to buy the shares.

These impressive results helped boost analyst expectations. JP Morgan increased its target from 590p to 600p, with Morgan Stanley also raising its target from 401p to 465p. As mentioned, the current price is just 378p. This gives me confidence that the shares could be a great long-term investment for my portfolio.

Considering the value of its shares, BP is trading on a forward price-to-earnings ratio of 6.6. This seems good value to me, especially considering the recent high profits. Competitors Shell and ExxonMobil are currently trading with 7.7 and 12.3 P/E ratios, respectively. This suggests to me that the current BP share price is undervalued.

BP share price: bear case

An obvious risk I see for BP shares is the global shift towards net zero and increasing ESG concerns among companies. Although BP has made a concerted effort towards cutting emissions, moving forward it’s going to take a huge amount of investment to keep these projects up. The firm already operates with very slim margins, which will come under pressure from outward investment.

In addition to this, the nature of BP’s business is very cyclical. At the moment, commodity prices are soaring, which is great for the business. However, if oil and gas prices crash, the company is in big trouble. This gives it an element of uncertainty in the long term.

BP announced yesterday its plans to divest its 19.75% stake in Russian oil giant Rosneft, following the Russian invasion of Ukraine. This is expected to result in a costly $25bn in exit charges, largely from foreign exchange. Whilst it has insisted this won’t impact any of its long-term strategic and financial targets, it’s definitely a worrying cost.  

The verdict

All things considered, I think that BP shares could be a great addition to my portfolio at its current price. The cheap valuation certainly looks appealing to me, especially considering the encouraging 2021 results. Therefore I would consider buying the shares for my portfolio today.

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 assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned in this article. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

1 Warren Buffett stock I’m buying now

Coca-Cola is the fourth-largest holding in Warren Buffett’s Berkshire Hathaway. I’ll explain why I’m following Buffett and buying more.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I bought 4,403 Lloyds shares in June and 4,856 in September. Here’s what they’re worth now

Harvey Jones thought he was bagging a FTSE 100 bargain when he bought Lloyds shares on two occasions last year.…

Read more »

Young woman holding up three fingers
Investing Articles

I’m itching to buy these 3 hidden FTSE gems in a Stocks and Shares ISA

Harvey Jones is keen to add these three FTSE 100 companies to his Stocks and Shares ISA before April. Only…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

How I’d try and turn just £1 a day into a fabulous £54,485 passive income for life

By investing small, regular sums in FTSE 100 shares I can potentially generate a huge passive income stream. It won't…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d aim for a million buying under a dozen shares

Christopher Ruane explains why less could be more when it comes to building a share portfolio if he wants to…

Read more »

Investing Articles

Rolls-Royce shares are up over 1,000% since 2020! Am I too late to buy?

Rolls-Royce shares now cost over tenfold what they did in the firm's 2020 rights issue. Our writer thinks they may…

Read more »

Investing Articles

1 top UK growth stock for my tech portfolio in 2024

Up 30% in just one year, this growth stock looks positioned to continue on the path of substantial gains, according…

Read more »

Buffett at the BRK AGM
Investing Articles

I’d follow Warren Buffett to target effortless passive income

Warren Buffett knows a thing or two about building passive income streams. By learning from the Sage of Omaha, so…

Read more »