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Are BP shares a good investment right now?

Image: BP

BP (LSE: BP) shares have been having a good run recently. The stock is up almost 30% since the beginning of 2021, but has only increased 4% during the last 12 months. So it seems that investors have become bullish since the start of the year.

I reckon this positive momentum could continue for BP shares and I think the stock makes a good investment right now. Here’s why I’d buy.

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Renewable energy

The world still runs on oil and gas, but this is changing. Most economies are moving towards renewable or green energy. And in my opinion, companies that don’t embrace this change sooner will likely get left behind.

BP has picked up on this trend and is making the transition to becoming an Integrated Energy Company (IEC). In short, it’s investing a lot of money in becoming a renewable energy player and reduce its reliance on oil and gas.

Of course, this change isn’t going to happen overnight. And all this capital investment in green projects could dampen profitability. But I’m optimistic on the long-term prospects for BP shares.

I like that the oil giant is focusing on net zero carbon emissions and on sustainability. That said, I guess it doesn’t have a choice. It’s either adapt to survive or the business will probably struggle.

On the firm’s investor relations website, CEO, Bernard Looney is quoted saying “we expect BP to be a very different energy company by 2030”. And I completely agree with this statement. Green energy, such as biofuel and hydrogen, is likely to overtake oil and gas. The business has some ambitious plans and I’m fully on board with these goals.

Financial position

The FTSE 100 company has also been trying to get its balance sheet in order. The debt position has become manageable for now. I’ve mentioned before that part of the reason why I think BP shares have been rising this year is that it has successfully reduced its net debt to below $35bn.

This has been achieved ahead of schedule by selling assets. It also announced a $500m share buyback programme for the second quarter. This highlights to me that the board is shareholder-friendly and is something I like to see from a management team.

But while BP’s financial health may be improving, the disposal of assets is only a short-term strategy. At some point, the company will have to stop. But the aim here is to get its finances in some kind of decent shape while at the same time diversifying its energy revenue with renewable assets.

So, there’s a lot of change happening, but I’m hopeful that the board will be able to pull it off. This could prove positive for BP shares in the long term.

Risks

For now, due to BP’s reliance on oil, the stock is linked to the price of the commodity. This means that the shares could be volatile. As I said, the transition to being an IEC player is going to take time. So any delays or setbacks are likely to hurt the stock.

But I think the company is taking the right steps and making progress towards its goals. This is why I’d buy BP shares right now.

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Nadia Yaqub 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.

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