Is the BP share price on the way up again?

The BP share price has gained 13% over the past few weeks. Christopher Ruane considers why and explains his long-term plan as a shareholder.

| More on:

Image source: BP plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The past few weeks have seen a minor turnaround in the share price of BP (LSE BP). BP shares are up around 13% since  the week before Christmas, after having been in a long downwards trend since April.

Still, over five years the BP share price has fallen 12%. That compares to a 24% increase in price for rival Shell during that period.

Sure, it offers a 5.6% dividend yield. But Shell offers 4%. Across the pond, Dividend Aristocrat Exxon Mobil offers 3.6% and has seen its share price grow by 68% over five years.

So, might the recent rise in BP shares suggest that is starting to close the valuation gap with its competitors?

BP’s emerging from a strategic fog of its own making

A key reason the company has lagged Shell and especially Exxon is what I regard as a self-inflicted wound.

Some years ago it made a big brouhaha about shifting its product mix towards one that was much less reliant on fossil fuels and emphasised renewable energy. Shell did something similar on a less ambitious scale, while Exxon has largely stayed the course as an oil and gas company.

The economics of that transition never convinced the market. BP under its current management has started to tack towards a less aggressive move away from fossil fuels.

Increasing clarity around that has helped to renew some investor confidence in the firm, as far as I can see.

Trading remains unremarkable

So, what has boosted the share price in recent weeks?

Last week the company issued a quarterly trading statement. But its contents were neither especially exciting nor worrying.

Net debt was expected to end the quarter lower than at the end of the prior quarter, while upstream production was expected to be lower. There were also some negative currency exchange and tax rate revisions to the guidance for the full year.

So, none of that besides the net debt reduction is good — but nothing jumped out at me as especially bad either.

The share price looks potentially undervalued

I think the recent share price turnaround could simply reflect a dawning realisation in the City that the BP valuation had drifted lower than it deserved.

Its market capitalisation of £68bn is hardly cheap, but it is less than half of Shell’s. It is also less than six times last year’s earnings.

Admittedly the company’s earnings have swung around wildly in recent years. But a clearer strategic focus on areas where it has proven expertise and valuable assets bodes well for BP’s future earnings, in my view.

From a long-term perspective, for BP’s collection of energy assets, long business experience, strong brand and extensive downstream marketing operations worldwide, I think the current price looks like a potential bargain.

That does not necessarily mean it will keep going up. The company has more work to do on delivering against a more focused strategy and even then its fortunes will always be largely tied to the oil price, which tends to crash from time to time.

But I do see ongoing value potential here and plan to hang on to my BP shares, hopefully collecting those juicy dividends regularly along the way.

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.

C Ruane 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.

More on Investing Articles

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

Time to buy Nvidia shares before fresh all-time highs?

Nvidia shares began 2025 at an all-time high before a big drop in the last week or two. Our writer…

Read more »

Investing Articles

A top FTSE 100 share to consider for a Stocks and Shares ISA starter portfolio!

While not without risk, a lump sum in this FTSE 100 trust could prove a great way for Stocks and…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

I asked ChatGPT to name the best 5 UK shares to build wealth over 50 – and here they are!

Harvey Jones is looking to build a balanced portfolio of UK shares to fund his final years, and asked ChatGPT…

Read more »

Investing Articles

£10k invested in Scottish Mortgage shares after the DeepSeek crash is now worth…

Harvey Jones thought his Scottish Mortgage shares were heading for a bumpy ride when DeepSeek emerged last month. Then he…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

1 ex-penny stock up nearly 400% in my Stocks and Shares ISA! 

This writer is starting to take notice of a small-cap stock that is 'up' significantly in his ISA portfolio over…

Read more »

Investing Articles

The FTSE 100 index hits new highs! But will Legal & General shares outperform it in 2025?

Legal & General's share price has rocketed almost 8% so far in 2025. Can it continue to outstrip the surging…

Read more »

Investing Articles

Up another 8% in a week! So what’s stopping me from buying IAG shares? 

Harvey Jones is desperate to add high-flying IAG shares to his portfolio before they climb even higher but there's a…

Read more »

Happy couple showing relief at news
Investing Articles

The Bank of England’s slashed its growth forecast but the FTSE 100 doesn’t seem to care!

On the day the UK’s central bank halved its forecast for growth in 2025, the FTSE 100 reached a record…

Read more »