BP (LSE: BP) shares have continued to slide over the last 30 days. Down 12%, the stock is currently sitting at 478p. A big driver behind the recent poor performance was its Q3 results, which came in below analysts’ expectations.
However, I think this drop presents the perfect opportunity to buy some cheap shares for my portfolio.
Results in detail
In its Q3 results the oil giant booked $3.3bn in revenue. As mentioned, this was significantly below expectations of $4bn. It also came in well below the $8.2bn made in the same period in 2022.
However, that figure was inflated by the huge oil and gas price surge after Russia’s invasion of Ukraine, which was really a one-off. On a quarter-on-quarter basis, revenue actually increased by $700m.
In addition to this, UBS analysts upheld their ‘buy’ rating and 640p target price, emphasising that the lower-than-expected returns in gas trading had somewhat overshadowed the company’s fundamental improvements, such as year-on-year growth in cash flow and a decrease in net debt.
These contextual points help ease the blow of the ‘poor’ results and give me confidence in the stock’s future growth.
Exceptional value
BP stands out as a clear value player when compared to its peers. Trading on a price-to-earnings (P/E) ratio of 4.2, it sits well below the FTSE 100 average of 14. Competitors Shell, China Petroleum & Chemical, and TotalEnergies trade on P/E ratios of 7.5, 10.4, and 8.6 respectively. This gap has been exacerbated by the recent drop in BP’s share price, further tempting me to buy the stock right now.
BP has a healthy dividend yield of 4.77% too. This just tops the FTSE 100 average yield and could be a great passive income stream to add to my portfolio.
And importantly, it hasn’t just been using its cash to pay investors directly. In its Q3 results, the company confirmed the completion of its previously reported $1.5bn share buyback initiative. Additionally, it unveiled plans for another round of buybacks of equivalent scale within the next three months – a positive development for shareholders.
Despite all this, I see one big risk for the stock: the challenge of renewable energy. BP must pull off a big turnaround as the world transitions to net zero emissions. Current projects working towards this aim have struggled. In its Q3 results the group reported a pre-tax impairment charge of $540m on its New York offshore wind project. The group will need to start delivering positive results to prove to investors it’s capable of shifting its business.
The verdict
That said, BP shares seem too cheap to ignore at the moment. Yes, the company needs to prove it can successfully pivot to green energy and this does present some uncertainty. However, looking at the fundamentals, I see big ticks in terms of value, growth potential, and shareholder rewards. As such, I am seriously considering adding BP shares to my portfolio now.
