BP shares (LSE: BP.) have had a poor run recently. Currently, they’re trading very close to their 52-week lows.
Should investors consider buying them at these levels? Let’s discuss.
A cheap stock
At first glance, BP shares do look cheap. Currently, City analysts expect the oil giant to generate earnings per share of 88.8 cents for 2024. This means that at today’s share price and exchange rate, the forward-looking price-to-earnings (P/E) ratio here is just 6.4. That’s less than half the UK market average. So, there could be some value on the table here.
There’s also a nice dividend yield on offer. At present, the dividend forecast for 2024 is 30.2 cents. That equates to a yield of about 5.3% – a higher rate than most savings accounts are offering today (note that analysts’ forecasts can be off the mark and that dividends are never guaranteed).
Many variables to consider
The thing to understand about BP shares, however, is that they’re quite speculative in nature. That’s because there are a number of variables that can impact the company’s profits and share price.
One is the price of oil. This can have a major impact on the stock. The problem is, oil prices are notoriously unpredictable. And where they’re heading in 2024 – and beyond – is anyone’s guess. They could rise from here, or they could fall.
Another factor is geopolitical tension/conflict. This can impact BP’s share price in both directions. For example, in October last year, the share price shot up on the back of the conflict in the Middle East as oil prices rose. More recently, however, the share price has fallen due to the issues in the Red Sea (where the company has temporarily suspended all transit).
Interest rates are also worth mentioning here. At the end of September, BP had net debt of $22.3bn on its books. So, interest rates movements could have an impact on its profits going forward.
BP as a long-term investment
It’s worth noting that, because there are so many variables that can impact the share price, the stock generally hasn’t been a very good long-term investment.
Twenty years ago, the shares were trading at around 450p. Today, they’re at roughly the same level.
Compare that to tech giant Microsoft. 20 years ago, it was trading just under $30. Today however, the stock is near $390.
Of course, BP has paid out a lot of dividends over the last 20 years. So, overall returns haven’t been terrible.
I’d be pretty disappointed, however, if I I’d bought the stock 20 years ago and had seen zero capital growth in that time.
My view
Putting this all together, I don’t see BP as a ‘strong buy’ today.
The shares could provide some solid returns from here given the low valuation and healthy dividend yield.
However, all things considered, I think there are much better stocks for investors to consider buying for the long term.
