Any investor looking to reduce exposure to wider stock market falls could do worse than consider BP (LSE: BP) shares.
In simple terms, when markets fall on fears around the Iran war, BP typically moves the other way. When investors grow more optimistic, the broader market rises and BP can slip back. I’m pleased at the moment that I hold the stock in my SIPP, as it’s helped offset losses elsewhere. But can the recent strong performance continue?
When I bought the FTSE 100 oil and gas giant 18 months ago, I had mixed feelings. BP had bungled its green transition and performed an awkward reversal back towards fossil fuels. Activist investors were circling, and the departure of chief executive Bernard Looney, followed by a short tenure from Murray Auchincloss, added to the disarray.
Non-correlating FTSE 100 stock
I took the plunge because the shares looked cheap and yielded more than 6%. Since then, I’ve enjoyed a total return of more than 50%. Where the share price goes next is as uncertain as ever.
Anyone who bought BP just a month ago has done very well. On 5 March, the shares opened at 481.25p. Today, they trade at 592.2p. That’s a rise of roughly 23%, turning £15,000 into £18,450. A gain of £3,450 in such a short period is impressive. If only investing was always that simple.
At The Motley Fool, we don’t advise buying shares with a short-term horizon. We aim to hold at least five years and ideally much longer. That gives dividends and capital growth plenty of time to compound.
But we do like to use market dips to pick up quality stocks at lower prices and higher yields. There are plenty on the FTSE 100 today, with many shares still down sharply. BP sits at the other end of the scale. It’s the strongest blue-chip over the last month. Rival Shell is the second-best, up 13%. That says a lot about what’s driving markets right now.
Binary investment play
BP has held firm even as the FTSE 100 has rebounded, rising 4.56% in the days leading up to Good Friday (3 April). That suggests investors are still wary about the outlook. I’m struggling to see a quick resolution to the Iran conflict. If tensions persist, energy prices could climb higher, potentially much higher. This would continue to boost BP. If a resolution somehow emerges, the shares could just as easily fall back. There are no guarantees either way.
Yet we’ve also been reminded that the world still relies heavily on oil and gas. When supply is threatened, the panic is tangible. It’s also shown how oil doesn’t just go into cars, but fertiliser and feed stock, chemicals, plastics and pharmaceuticals. BP remains a volatile stock, and that won’t change any time soon. For those considering it, a gradual approach could make sense, buying in stages rather than all at once. The shares currently yield 4.8%.
Others may prefer to buy beaten-down FTSE stocks instead. There are certainly plenty of those to choose from today. But BP shares could have further to run.
