BP (LSE: BP) shares have been receiving plenty of attention recently and it’s easy to see why. Thanks to sky-high oil and gas prices, the company has seen its profits explode higher.
Is BP a good stock to buy for my portfolio today though? Let’s take a look.
Are BP shares worth buying?
To say that BP is doing well at the moment would be an understatement. With oil and gas prices at such high levels, the company is literally minting money.
This is illustrated by its recent second-quarter results, posted earlier this month. For the period, the company generated a profit of $8.5bn (its highest in 14 years) versus $2.8bn a year earlier. Meanwhile, operating cash flow was $10.9bn, up from $5.4bn a year earlier.
As a result of this strong performance, BP was able to pay down debt significantly, ending the period with net debt of $22.8bn versus $32.7bn a year earlier. On top of this, it raised its dividend by 10% and raised its share buyback programme to $3.5bn for the third quarter, from $2.5bn in Q1. All in all, it was a bumper set of results.
Low valuation and attractive yield
Yet this strong performance doesn’t seem to be factored into the share price. BP now trades at just four times this year’s estimated earnings per share. That’s a very low valuation. In other words, BP shares appear to be cheap right now.
Additionally, there’s a nice dividend yield here. With BP projected to pay out 22.8p in dividends for 2022, the prospective yield is around 4.5%. That’s attractive in the current low-interest-rate environment.
So, overall, there’s a lot to like about BP shares at present, in my view.
How long will the good times last?
The big question, for me at least, is how long these good times (i.e. high oil prices) will last. Because history shows that oil prices can rise and fall significantly, leading to boom and bust periods for oil companies like BP (and their shareholders).
My personal view is that the good times could last a few years. I say this because during Covid-19, oil companies globally dramatically cut back on traditional energy investments. This created a massive supply and demand imbalance and this is likely to take time to unwind.
However, I don’t expect them to last forever. And this creates issues for me as a long-term investor. Because when I buy a stock, I want to own it for at least five or 10 years, or even longer.
And looking out five or 10 years into the future, I have no idea what oil prices are going to be doing. They could be where they are today. Or they could be a quarter of what they. The fact that the world is making a major shift to renewable energy certainly creates uncertainty.
It’s worth pointing out that BP is making its own transition to renewable energy. And the massive profits it’s generating today will certainly help with this. However, this transition is still in its early days, and there’s no guarantee it will pay off.
My move now
Putting this all together, I’m happy to leave BP shares on my watchlist for now. All things considered, I think there are better, safer stocks I could buy today.
