The BP (LSE: BP) share price is getting a little bit silly. It bobs up and down from day to day, depending on events in the Middle East.
When there’s talk of a peace deal between the US and Iran, the oil price falls and BP shares follow as investors anticipate lower revenues and profits. When hostilities sadly ratchet up, crude climbs and so does BP.
I hold the FTSE 100 oil giant in my Self-Invested Personal Pension (SIPP), and it’s a rare point of light on the bad days, when most of my other holdings are falling. A little diversification can go a long way.
Is this FTSE 100 growth stock too volatile?
BP shares climbed 4.5% last week as fighting in the Gulf tragically intensified. They’re now up 29% over one year and more than 80% over five. Dividends come on top of that, lifting the total five-year return to around 110%. It’s been a good investment, and yet the company as a whole is thought to have lost its way.
BP has had a torrid 15 years since the Deepwater Horizon tragedy in 2010. It’s been a strategic mess, charging into renewables then flying back into fossil fuels. It’s endured constant boardroom upheavals, working through three chairs and four chief executives in three years. Yet the shares have climbed and the dividends have kept flowing. We’ve had generous $750m quarterly share buybacks too, although these are currently paused as the board focuses on working down its $22bn net debt.
The threats are standing in line. Climate change risks could trigger tighter regulation while cash-strapped governments could impose fresh windfall taxes. There’s talk of an oil glut next year, which could knock the oil price, although that depends on geopolitics. The transition to electric vehicles may curb a key source of demand. On the other hand, we’ll still need oil for products ranging from fertiliser and petrochemicals to paints and animal feed.
So what do the experts make of all this? They’re looking on the bright side. The BP consensus one-year share price target is 607p. If correct, that would represent growth of 17.4% from today’s 517p. Throw in the forecast yield of 4.9% and the total return comes to 22.3%. Of course, these are only forecasts, but if they’re right, a £12,000 investment today would grow to £14,676 by July 2027. That would be a very respectable return, although it’s far from guaranteed.
Some 31 analysts have issued ratings over the past three months, and there are signs enthusiasm is ebbing:
- Strong Buy: 12
- Buy: 2
- Hold: 13
- Sell: 2
- Strong Sell: 2
There’s plenty of caution here, very few outright sellers. That mixed verdict is reflected in the valuation, which is hardly demanding withn a forward price-to-earnings ratio of just 7.7.
Any investor approaching BP today must brace themselves for plenty of volatility. But I still think it’s still well worth considering as part of a balanced portfolio. As ever, investors need to look beyond the short-term ups and downs, and take the long-term view.
Should you invest £5,000 in Bp P.l.c. right now?
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Harvey Jones owns shares in BP.
