Is the BP share price set to soar after Michael Burry invests in the firm?

Jon Smith takes note of a recent purchase from the famous investor behind The Big Short and explains his view on the BP share price.

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Image source: BP plc

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Michael Burry was thrust into the limelight after he spotted the early warning signs of the global financial crisis. After being featured in The Big Short, the activities of his hedge fund are now carefully watched by investors. So when I spotted that he had recently invested in BP (LSE:BP), it got me thinking. Is the BP share price primed to rally?

Thinking about the purchase

Scion Asset Management reported buying 175,000 BP shares during the first quarter of this year. The stock is up a modest 2% over the past year, so this purchase isn’t exactly jumping on the bandwagon of a share that’s already exploding.

Therefore, it seems to me that Burry expects something to happen over the space of the next year or so. When I consider the company, there are a few reasons that could potentially light the fuse.

To begin with, the stock is heavily linked to the oil price. As one of the largest oil firms globally, the share price is naturally influenced by how oil performs. This was noted back in 2022 when soaring energy prices (including gas) helped to fuel the highest profit for the firm in over a decade.

The forecast for the oil price is mixed, depending on who you talk to. Yet there are some that feel it’s going to rally. They cite heightened geopolitical tensions in the Middle East that could disrupt supply. Further, China is the second-largest consumer of oil in the world. A rebound in the economy could see demand rapidly increase.

BP-specific factors

Aside from external factors, Burry might have a positive outlook on BP specifically. The firm recently announced a large $1.75bn share buyback, as well as continuing to pay out dividends. At the moment, the dividend yield is 4.66%, well above the FTSE 100 average.

BP is also targeting $2bn worth of cash savings by the end of 2026. This push should help the sprawling firm to become more efficient, which ties in with the recent management reshuffle as well. Both should be positive signs.

However, I do note some risks. The recent Q1 results showed that underlying profit dropped from $5bn a year ago and $3bn last quarter to $2.7bn. This isn’t a trend that the business will want to continue. It flagged up “the impacts of the Whiting refinery outage and significantly weaker fuels margin.”

Final thoughts… for now

In terms of value, BP has a price-to-earnings ratio of 7.11. This is below my benchmark figure of 10 as fair value. Therefore, I do agree with Burry that this is a good stock to add. However, I wouldn’t say that this is the hottest stock that has come across my desk recently. Therefore, although I like it, I feel I can find better opportunities elsewhere for my limited amount of spare cash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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