It would be fair to say BP (LSE:BP) has had a pretty torrid 2020 so far. The oil giant has suffered massively due to the Covid-19 pandemic and economic downturn. At this moment, I believe the BP share price is very cheap. But is too good to miss or one to avoid?
November has been a funny old month. The news of Covid-19 vaccine breakthroughs may have prompted the start of a potential market recovery. The FTSE 100 surged over 14% in the past month alone on the back of the vaccine news. But has this benefited the BP share price and outlook, and its viability as an investment?
BP share price in 2020
At the beginning of 2020 I could buy BP shares for over 500p per share. Covid-19 triggered an oil-price collapse. The price of Brent crude crashed from $70 to less than a paltry $16 in April.
The height of the market crash was considered to be mid-March. At that point BP shares were available for 240p per share. This was a 52% decrease since the January high. Unfortunately for the BP share price, things continued to get worse. With economies in lockdown and the demand for oil falling significantly, BP continued to struggle. At the end of October, the BP share price achieved an unwanted milestone. I could purchase shares for just 188p which is a 26-year low.
The landscape of the oil business has changed over the past few months. BP’s recent trading results have shown just how much it has been affected. For example, last year’s Q2 profits of $2.8bn turned into a $6.7bn loss this year. Q3 saw a bit of a recovery, with a miniscule profit of $100m. I emphasize the word miniscule as this is tiny by BP’s usual standards.
In August, BP halved its dividend due to disappointing Q2 results coupled with general performance and the market downturn. Despite this, you would be hard pressed to find an investor complaining about the dividend. This is because BP still offers a forecast yield of over 8%, which is much higher than some other FTSE 100 stocks.
Buy or avoid? Here’s my verdict
Last month alone saw the BP share price rise over 25%. Since the 26-year low, it has increased 37% which is a great rate of growth for just over one month in my opinion. The Covid-19 vaccine news has definitely benefited the oil industry and investor sentiment in my opinion. Oil prices have also increased with the price currently sitting near $45.
At this moment the BP share price is still trading at levels similar to the market crash back in March. I believe it will continue to rise after an impressive November and gain further momentum.
BP still pays a quarterly dividend which can add up to a cash yield of over 6%, which seems impressive to me. Additionally, the price of oil continues to go up and vaccination could begin as early as next month, which could see market conditions begin to normalise. Right now, I believe shares in BP could be a great opportunity along with these other picks.
Jabran Khan 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.