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The FTSE 100’s Hottest Growth Stocks: BP plc

bpToday I am outlining why BP (LSE: BP) (NYSE: BP.US) could be considered a terrific stock for growth hunters.

More earnings woe edges into view

The effect of volatile oil prices, lower refining margins and escalating exploration and production costs have weighed heavily on BP’s growth during the past five years. The company is engaged in extensive restructuring to counter these problems but has still failed to string together two consecutive years of growth since the 2008/2009 recession hammered profits.

But the oil leviathan’s plan to strip out costs and de-risk by concentrating on only the most promising assets should in theory help to boost the group’s long-term growth prospects. BP has successfully completed a third of its $10bn divestment scheme, to be finished off by the end of next year, while its more disciplined production programme is also clicking through the gears.

It has already brought output online at five new major projects this year — three of which are in the oil-rich waters of the Gulf of Mexico — and has another two waiting to be switched on shortly.

In the immediate term, however, City analysts expect weak refining conditions at its downstream operations to keep the boot pressed firmly on the bottom line, and have pencilled in a 36% earnings decline for this year to 48.4p per share. Still, the effect of heavy streamlining is anticipated to produce an 8% rebound in 2015 to 52.1p.

Market fears factored into the price?

Of course BP faces the prospect of waves of new capacity coming on stream over the next few years, a situation which could drive oil prices through the floor and with it the fossil fuel giant’s revenues prospects.

But many would argue that these problems are currently cooked into BP’s current share price, and the stock was recently changing hands at just 9.7 times and 9 times prospective earnings for 2014 and 2015 correspondingly. Any reading below 10 is widely considered tremendous value.

Still, investors must be willing to stomach the risk of further oil price weakness; the unpredictable nature of well exploration and development; concerns over escalating sanctions on Russia and consequently Rosneft revenues; and what the final bill will work out at for once the Deepwater Horizon court case is resolved. BP is clearly a classic high-risk, and potentially high-reward, stock not for the faint of heart.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.