Looking back, the BP (LSE: BP.) share price would have made it a cracking buy in the depths of the 2020 stock market crash. Since then, the shares have more than doubled, to 495p, at the time of writing.
The company chose that time to announce its new carbon net-zero policies. Might as well get all the short-term bad news out of the way at once, or something like that.
Anyway, so much for hindsight, but how might expert foresight help us?
The Big Short
The big questions are about the long-term future for hydrocarbon energy, but that’s not holding back some of the world’s foremost investors.
Michael Burry, popularised in the book and film The Big Short, saw the US property crisis that kicked off the 2008 financial crisis coming. He put his cash into betting against the market, and made a pile.
He runs the Scion Capital hedge fund, and through that he’s bought a $6.5bn stake in BP. Does that mean we should rush out and follow him? Well, not without doing our own research.
Is he confident in BP’s long-term move to lead the renewable energy market? Maybe he just sees a short-term undervaluation. Then again, his contrarian investments can take time to come good.
The Sage
Billionaire investor Warren Buffett, dubbed the ‘Sage of Omaha’, is very much into long-term value investing. And in early 2024, he loaded up on Occidental Petroleum.
In his latest letter to Berkshire Hathaway shareholders, he enthused about the firm. He pointed out that “no one knows what oil prices will do over the next month, year, or decade.” But he still described his intended holding period as indefinite.
Oh, and two of Berkshire Hathaway’s top 10 holdings are oil stocks, with Chevron in there too.
The City says…
That’s two of today’s most respected investors firmly behind the oil business, with one directly keen on BP. But what do broker forecasts say?
Throughout the past couple of years, earnings forecasts have been rising. If they’re on the ball, we could see BP shares on a price-to-earnings (P/E) ratio of only 6.8 by 2026. And they put the dividend yield at 5.5% by then.
That’s if the BP share price doesn’t rise. And with a P/E only about half the FTSE 100‘s long-term average, it does look like there could be some nice profit potential there.
And, according to MarketScreener, there’s a strong buy consensus among brokers right now.
A no-brainer buy?
This forecast stuff is all very well, but it is short-term by its very nature. For private investors, I think we need to weigh up long-term potential against current valuation.
And while that P/E does look attractive, BP’s net debt figure is a bit high. At the end of Q1, it had risen to $24bn (£18.8bn). I think that takes a bit of the shine off what looks like a cheap valuation.
But, if the experts are right, the BP share price could be in for a good spell.
