BP’s share price is rising. Should I buy the stock now?

The BP share price has jumped in value this year as the price of oil has increased, and this could be a good opportunity to buy the stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Windmills for electric power production.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The BP (LSE: BP) share price has outperformed the market in 2021. Year-to-date, the stock has jumped 24%, outperforming the FTSE 100 by 22%. 

However, the stock’s performance is less impressive over the past year. Since the beginning of March 2020, shares in the oil major have fallen in value by 5%, excluding dividends. The shares have underperformed the UK’s leading blue-chip index by around 15% over this period. 

So, the BP share price has rallied in recent weeks, but the stock still appears cheap on a longer-term horizon.

With that being the case, I’ve recently been taking a closer look at the business to see if it could be worth adding the shares to my portfolio on this weakness.

BP share price growth 

I think the company’s recent performance can be traced back to the oil price. The price of black gold recently moved back above $70 per barrel, its highest level since the pandemic began. 

This is excellent news for producers such as BP. Last year the company announced one of the most considerable losses in UK corporate history as it was forced to write off billions of pounds worth of assets due to falling oil prices. 

City analysts have certainly become far more optimistic about the group’s prospects in the last few weeks. At the beginning of the year, analysts had pencilled in earnings per share of $0.26 for 2021. They have since revised these projections to $0.31, an increase of 19%. 

If oil prices continue to trend higher, I think this projection could be subject to further upward revisions. 

That said, forecasts can move up as well as down. If the oil price were to change direction and start falling again suddenly, the BP share price might follow suit. That’s perhaps the most significant risk the company faces right now. 

Another challenge is the move towards renewable energy. BP is one of the world’s largest oil producers, but the world is moving rapidly away from using hydrocarbons as a primary power source. The company’s forecasts suggest global oil demand will peak in 2030. That’s only nine years away. 

Falling oil demand could negatively impact oil prices, and BP needs to adapt to the new normal. The group plans to spend tens of billions of dollars over the next decade boosting its renewables business, but this might not be enough. There are also growing concerns that the firm is paying too much for renewable assets. This could hurt growth in the long term and damage BP’s balance sheet. 

Long-term outlook

Considering all of the above, while the BP share price has outperformed the market over the past few months, I’m not going to buy the stock for my portfolio today. 

BP has outperformed on rising oil prices, which is likely to be a short-term trend. In the long term, it’s challenging to see how the group will adapt to the new normal in the energy space while producing attractive returns for its investors. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »