The BP (LSE: BP) share price fell 2.24% yesterday (16 April) and I’m thinking of taking the opportunity to add it to my portfolio.
That’s not a massive drop. The stock is still up 16.4% over three months, although it’s down 2.53% over the year. Either way, it still looks incredibly cheap, trading at just 7.88 times forward earnings. I don’t hold either of the FTSE 100 oil majors in my self-invested personal pension (SIPP), and it’s time I put that right.
Both BP and rival Shell have been in the news lately, amid suggestions they’d be worth a lot more if listed in New York. I’m sure they would, given the far greater pool of capital there, and the fact that most UK stocks seem to be trading at a discount.
Discounted stock opportunity
So is it still worth investing while BP is listed in London? I think it is. The world seems to be waking up to low UK stock valuations. Foreign bargain seekers are snapping up companies left right and centre. The Abu Dhabi National Oil Company (ADNOC) briefly considered lining up a takeover bid, before backing off.
I never buy stocks on takeover talk, but I do like buying companies with solid profits, low valuations, high dividends and generous share buyback programmes. BP holds up on all of these fronts. The board raised the dividend by 10% in 2023, and the shares are forecast to yield 4.63% in 2024 rising to 4.89% in 2025.
While that’s lower than the 5% or 6% it paid for years, that easily beats the FTSE 100 average of 4% and is heading in the right direction
In 2023, BP bought back $7.9bn of its own shares. It also cut net debt to $20.9bn, the lowest level in a decade. Two more reasons for me to buy it.
Markets are difficult to time
Its shares have idled over the last year or so as the oil price retreats from its energy shock highs. With crude bubbling above $90 a barrel on Israel-Iran tensions, it’s been on the up again.
This also makes now a risky time to invest. If tensions ease the oil price will dip and BP shares inexorably follow. On the other hand, if the oil price spikes, so will BP shares. The mood is likely to swing from day-to-day, often wildly. BP is also committed to shifting away from hydrocarbons into renewables, but the transition will be expensive and uncertain. Shell seems to be playing safer, by committing to oil and gas.
I could tie myself up in knots trying to second-guess stock market movements, so I won’t. BP shares look cheap enough to me. While it’s always nice get a low entry price, there’s no such thing as the perfect time to buy a stock. If I do buy them, I plan to hold for several decades.
BP’s gas marking and trading business has also been going great guns, which adds to the buy case. I’ve got a gap in my portfolio for an oil major. I’ll plug it by buying BP.
