I purchased shares in oil giant BP (LSE: BP) on 5 February and my investment is already up 4.8%. That’s largely due to the release of its fourth quarter results on 6 February. However, that’s not the only reason I bought some shares. I’m also bullish on their long-term performance.
The stock’s been through a rough patch recently. The share price plummeted during the pandemic as the demand for oil dwindled. While it made a recovery, it’s gone through a blip in the last few months.
It reached a fresh 52-week low in January. But could now be a time for me to buy more? I think so.
A strong quarter
BP’s latest release shows the firm is continuing to head in the right direction. For the fourth quarter, the group’s underlying profits come in at $3bn, beating analyst estimates of $2.8bn. To add to that, during the three months there was a reduction in net debt by $1.4bn to $20.9bn. This will help it shore up its balance sheet going forward.
More widely for the year, although sales fell from the bumper number recorded in 2022, they were still the second highest in over a decade.
More to like
Clearly, the most recent update showed BP is strengthening. But aside from its results, what else makes me bullish?
There are a few things. First, the stock looks cheap. In fact, it’s one of the cheapest on the FTSE 100 when measured using the price-to-earnings ratio. BP currently trades on around just four times earnings. That’s dirt cheap. It also looks undervalued when compared to a host of its peers.
There’s also a meaty 4.7% dividend yield to go alongside its cheap valuation too. And as if that wasn’t enough, BP has committed to returning $1.75bn to shareholders via a share buyback programme in the first quarter of 2024, as well as the same amount in the second quarter. Part of the group’s wider target is to buy at least $14bn worth of shares in 2024 and 2025.
Threats to BP
There’s lots to like about the firm. But I do have my concerns.
It operates in a volatile industry. I mentioned earlier about the effect the pandemic had on the business. That showed just how much the stock’s price can be influenced by outside events. Right now, the largest threat comes from the ongoing conflict in the Middle East.
There’s also the danger posed by the energy transition. As investors place greater emphasis on ESG (environmental, social, governance) factors when investing, BP may fall out of favour. The fossil fuel industry has come under massive scrutiny in recent years.
I’d buy more
However, I’m confident it’ll be years before we see the full eradication of fossil fuels. 2050 remains the net zero emissions target for the UN. Even that could be viewed as optimistic. BP is also adapting. For example, it recently completed its purchase of Lightsource, the largest solar developer in Europe.
As such, I believe investors should strongly consider adding BP shares to their portfolio. In the weeks to come, if I have investable cash, I’ll be adding to my position.
