The outlook for oil and gas producer BP (LSE: BP) continues to improve. Although the oil price has declined in recent weeks, the company’s prospects are possibly the strongest they have been in over a decade.
Despite this, the stock trades on a relatively low valuation. This suggests that it could offer high capital growth prospects, as well as a growing dividend. As such, now seems to me to be the right time to buy the stock, alongside another FTSE 100 company which released encouraging results on Wednesday.
The company in question is real estate investment trust (REIT) British Land (LSE: BLND). It released half-year results which showed that it’s experienced a period of good operational and strategic progress. It’s also remained focused on progressing with its overall strategy, while refining its portfolio.
As part of that, in the last 12 months retail assets valued at £634m have been either sold, or are under offer. Its London office developments are letting up ahead of schedule and on better terms than anticipated.
Clearly, the outlook for commercial property in London is uncertain. Brexit could have a major impact on its performance, with it being difficult to predict the near-term prospects for the industry. But with demand for high-quality office space set to continue, the company remains optimistic about its outlook.
With a dividend yield of over 5%, British Land appears to offer good value for money at the present time. It could deliver improving dividend growth due to continued strength in the global economic outlook, while changes in the UK property market may present opportunities for it to benefit over the long run.
As mentioned, BP’s future appears to be brighter than at any point in the last decade. In that timescale, it’s faced the financial crisis, the Deepwater Horizon oil spill in 2010, and falling oil prices. Now, though, it’s due to post strong earnings growth, with its bottom line forecast to rise by 11% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 1.1, which is exceptionally low, given the diverse nature of its asset base, as well as its size and scale.
Certainly, there are challenges facing the oil price. Fears surrounding the prospects for the world economy could lead to it falling, having already slipped by around $15 per barrel in recent weeks. And with the company continuing to invest heavily in its asset base, and in acquisitions, its outlook may appear to be somewhat risky.
BP and other oil stocks, though, continually face the risk of a lower oil price. The fact that it has a relatively low valuation and a 5%+ dividend yield suggests that it could offer a wide margin of safety at the present time. As such, now could be the right time to buy it after a tough decade for the business, I believe.
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Peter Stephens owns shares of BP and British Land Co. The Motley Fool UK has recommended British Land Co. 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.