The BP (LSE: BP) share price has hovered between the 450p and 550p mark for most of 2023. However, in the last 30 days the stock has slipped around 4%.
When I look at BP I am immediately drawn to its low valuation and healthy dividend. These are typical things I look for when scouting out stocks.
So, considering the stock’s current position, should I be looking to open up a position heading into 2024? Let’s investigate.
Valuation and dividend
As mentioned, BP boasts a low valuation. To be more specific, the stock currently trades on a price-to-earnings (P/E) ratio of just four. This is miles below the FTSE 100 average of 14. Also, when looking at BP’s competition, Shell and ExxonMobil, who trade on P/E ratios of seven and 10 respectively, I am further enticed.
Coupling this low valuation, the oil giant also offers a healthy dividend of 4.8%. This isn’t far above the FTSE 100 average, but it’s still a nice to have for any investment. Dividends are a great way to earn passive income from a portfolio.
In terms of stock valuation, I see another plus for BP. In its Q3 results, the company reported the completion of a $1.5bn share buyback programme. Share buybacks are good news for investors, as reducing the shares outstanding means dividend payments are shared between fewer stocks, hence pushing up the yield. Also, performance metrics like earnings per share (EPS) are pushed up, which can attract new investors.
BP also announced another series of buybacks over the next three months amounting to the same $1.5bn sum. This could further push up the dividend and lead to enhanced EPS numbers.
Institutional investors seem to share this optimism, with analysts at Barclays adding a 1,000p price target to the stock. This represents over a 100% increase from the current share price. Research analysts at UBS also back the stock to rise next year, maintaining a ‘buy’ rating and 640p price target.
Negative outlook
Unfortunately for BP, its share price performance is closely related to oil prices. Brent crude has fallen from $90 a barrel to $75 a barrel in 2023. I expect this is much of the reason that BP shares have remained relatively stagnant.
In addition to this, the abrupt departure of long time CEO Bernard Looney was a bit of a spanner in the works. Combining this with missed Q3 earnings no doubt left many investors uncertain of BP’s immediate future. And if there is one thing that investors don’t like, it’s uncertainty.
While BP has announced plans to move to drastically reduce its carbon footprint, it essentially needs to reinvent itself if it is to survive in the race to net zero. A company of its magnitude no doubt has teams working hard to realise this future, but it remains another uncertainty at present.
Am I missing out?
The shares do look dirt cheap. Institutional investors also seem to think so. However, I am still unwilling to buy any of its shares given some of the immediate uncertainty surrounding the stock. For this reason, BP remains on my watchlist for now.
