The FTSE 100 leading share index is up 7% in 2024. It’s risen as the appetite for blue-chip stocks has reignited following years of underperformance.
I’ve long felt that Footsie stocks have looked cheap on an historical basis. And investors are now piling into the index in the quest for bargains. It’s a trend I expect to continue in 2025.
I also plan to keep shopping for FTSE 100 stocks. Some of my purchases in the year to date include Aviva, Legal & General, Ashtead and Coca-Cola HBC. But there are some companies I’ll continue avoiding like the plague.
Oil major BP’s (LSE:BP.) one of them.
Oversupply worries
The escalating Middle East conflict has boosted oil prices this year. And with military action stepping up, they could rise further in 2025 if fears of crude shortages reignite.
This would naturally boost oil producers like BP. However, as things stand, I think the risks of buying the energy giant outweigh the potential benefits.
This is because any supply disruptions could be outweighed by plummeting demand. It’s a risk that the International Energy Agency (IEA) flagged up in its latest report this week.
The body notes that “supply keeps flowing, and in the absence of a major disruption, the market is faced with a sizeable surplus in the new year”.
Due to weak Chinese demand, the IEA predicts global oil demand of 1m barrels a day in 2025. This is down significantly from the 2m barrels we consumed each day during the 2022-2023 post-pandemic period.
Meanwhile, the IEA thinks supply from non-OPEC countries alone will be 1.5m barrels a day. Combined with output from the OPEC cartel, the world could be swimming in excess oil that dampens prices.
Debt concerns
Crude’s dropped back below $70 a barrel in recent hours. And there could be more blood on the floor in the weeks and months ahead if key economic releases from the US and China continue to disappoint.
BP’s share price is down 16% in the year to date. This is greater than the 9% decline in Brent crude prices in that period, and reflects fears over how the oil major will service its high debts in a low-price environment.
The company’s net debt was $22.6bn as of June. And it warned this month that levels would be higher at the end of the third quarter, due in part to weak refining margins.
Today, BP’s net debt to EBITDA ratio is 2.3 times. This is higher than I’d like in the current climate. If oil prices do decline this could spiral out of control, putting huge pressure on dividends and the share price.
BP shares trade on a price-to-earnings (P/E) ratio of 8 times. But given the worrying near-term outlook — not to mention the worrying longer-term picture as renewable energy takes over — I’d rather buy other FTSE shares for 2025.
