BP shares are forecast to return 30% in 2025 – and they’re filthy cheap with a P/E of 5.8!

Harvey Jones bought BP shares twice in the autumn and after a bumpy start he expects great things in the year ahead. He’s not counting his chickens though.

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BP (LSE: BP) shares had a bumpy 2024. Measured over 12 months, they’re down 13.5%. Despite the juicy trailing yield of 5.51%, investors are in the red.

That’s largely down to the unravelling energy shock. The BP share price rocketed in 2022, after Russia invaded Ukraine. Last year, with oil sliding towards $70 a barrel, the only way was down.

Created with Highcharts 11.4.3Bp P.l.c. PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

That doesn’t worry me. The energy sector is more cyclical than most. In fact, herein lies the opportunity. The time to invest in cyclical stocks is when they’re down, rather than up. Which is why I bought BP twice in the autumn.

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Can this energy stock fly in 2025?

I’ve had a bumpy ride so far but things are starting to look up, and there could be more to come. Analysts certainly think so.

The 26 analysts offering one-year share price forecasts have produced a median target of 502p. That’s up more than 23% from today. But that’s not the only reward investors might look forward to.

The shares are forecast to yield a handsome 6.55% this year, which is a brilliant rate of income. This leaves investors looking at a potential total return of 30% in 2025. Personally, I’d be delighted with that.

Forecasts are slippery things of course. A longed-for peace deal in Ukraine could knock energy prices, depending on the terms of the deal. As could another year of high interest rates and low economic growth. So could President-elect Donald Trump’s plans to ramp up fossil fuel production. Cheaper oil is usually bad for BP.

Alternatively, Trump could surprise everyone by burying the US-China trade war (an outside bet but it could happen). A Chinese economic revival would drive up demand. Personally, I’ve no idea what’s going to happen. Forecasts are fun but I don’t believe in them.

Cheap as chips and a brilliant yield

So what about BP itself? On 29 October, it posted its weakest quarterly profits since the pandemic due to the oil price slump and narrowing margins in its refinery business. It still made underlying profits of almost $2.3bn for the three months to September 30, beating the $2bn analysts had predicted (see what I mean about forecasts?).

There was good news in there too as newish CEO Murray Auchincloss pledged to maintain BP’s quarterly share buybacks at $1.75bn a quarter. So that’s the third way BP will reward investors this year.

BP shares looking incredibly cheap with a price-to-earnings (P/E) ratio of just 5.8. UK stocks are routinely undervalued these days but that’s way below the average FTSE 100 P/E of around 15 times.

Of course, the shares could get cheaper still if energy prices plunge. Plus BP still has to navigate the green transition. It’s not a complete failure on this front. On 9 December, the board said it was combining offshore wind operations with Japan’s largest power generation company JERA. The new offshore wind entity will be one of the world’s biggest.

I’ll buy more BP shares as soon as I can raise the cash. With a long-term view, I think they’re a no-brainer buy for me. Especially at today’s price.

But there may be an even bigger investment opportunity that’s caught my eye:

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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.

Harvey Jones has positions in Bp P.l.c. 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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