The Motley Fool

The BP share price is in freefall! This is what I think you should do

Since the start of October 2018, the BP (LSE: BP) share price has declined by around 16%. For a FTSE 100 stock, that’s a significant movement in a relatively short space of time. And while the wider index has been weaker of late, the stock has underperformed many of its index peers.

For long-term investors, there could be recovery potential on offer. BP seems to offer a wide margin of safety, as well as a sound overall strategy. Therefore, alongside another turnaround stock which released a trading update on Tuesday, it could be worth a closer look.

Growth potential

The second company in question is surgical and advanced woundcare specialist Advanced Medical Solutions (LSE: AMS). It released a brief update which stated that trading for the year to 31 December is expected to be in line with plan. The company has been able to make good progress with the delivery of its strategy, with its growth rate supported by innovative product development.

Looking ahead, it’s expected to report a rise in earnings of over 9% in the next financial year. This suggests its strategy is sound and that its operating environment remains robust. Earnings growth has, of course, become the norm for the stock. In the last half-decade, it’s been able to increase its bottom line in every year, rising at an annualised rate of 12%.

Given the uncertain prospects for the UK and world economies, companies that are able to offer relatively robust financial prospects, such as Advanced Medical Solutions, could become increasingly popular. Therefore, following its share price decline of 25% in the last four months, it could offer long-term investment potential, in my opinion.

Recovery prospects

As mentioned, the BP share price has experienced a challenging period. The oil price has been a key driver behind weakness across the energy sector, with the price of Brent falling by $28 since early October. This has eradicated all of the gains made between the latter part of 2017 and October, and could mean that investors become increasingly concerned about the outlook for a number of oil and gas companies.

In such a scenario, it could be prudent to focus on larger stocks which may have stronger balance sheets and greater diversity. They may be hit less hard by further falls in the oil price, while also offering margins of safety, which suggest that successful turnarounds could be ahead. Although BP has experienced financial difficulty in the past, it appears to have a strong asset base and improving financial outlook.

Following its share price fall, the company trades on a price-to-earnings (P/E) ratio of around 11.8. This suggests that it may offer good value for money. As with any falling asset, there could be further declines ahead. But in the long run, today’s price seems attractive, in my opinion.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.

Peter Stephens owns shares of BP. The Motley Fool UK has recommended Advanced Medical Solutions. 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.