Centrica (LSE:CNA) shares are ranked amongst the top three FTSE 100 performers over the last year. Being a seasoned UK energy giant, its shares have jumped 48% in the last 12 months of trading. And I think this could be the start of a big bull run in 2023. 

The surge in its share price is primarily because of the energy crisis in the UK and Europe. Rising fuel costs are causing strong inflation in the region. Germany was in the news earlier this week when inflation hit its highest level in almost 50 years. Nine other countries in the region have registered double-digit annual inflation, thanks to a big spike in August. 

A recent report from the International Energy Agency showed that coal prices will remain close to all-time highs for at least the next six months. As a result, energy companies could see a further surge in earnings in 2023. And I think investors have rightly been clamouring to buy renewable energy shares in the UK while they are still cheap.

Centrica share price has strong momentum

Centrica is one of the largest suppliers of electricity and natural gas to consumers in the UK and Ireland. The company operates British Gas, which provides gas to over 9m homes across the country. 

Just this week, UK wholesale gas price tumbled by more than 20% thanks to Centrica’s efforts to reopen UK’s biggest gas storage facility located under the North Sea. However, despite this drop, prices still remain 12 times higher than 2021 levels.

While many investors will look at this as a step to reduce gas prices, I think this still benefits the firm. Gas storage facilities will now maintain reserves at 80% capacity. This is to avoid any abrupt supply disruptions when Russia further reduces gas exports before the winter. This means that British Gas‘ reserves could quickly jump in value again if reserves drop in early 2023.

This is the main reason why I think Centrica shares look cheap right now despite the 143% rise since 2020’s crash. At 77.8p, its share price is currently 20% lower than 2022’s highs of 93p. And I think the company can post new post-pandemic highs if current demand continues in 2023. 

Concerns and verdict

However, this is firmly dependent on how the UK government handles the current energy crisis. Relief measures, including cash payments to households, have been deployed to reduce the impact on the public. European leaders are turning to other major exporters like the Middle East and the US. However, given the demand, this could become expensive.

The price of crude oil is a big factor that Europe and UK will have to address. Companies, including Centrica, have an established renewable energy network. But if they are forced to increase green energy capacity, it could put pressure on operations and cash reserves. This could put off investors as profit margins and revenue will be affected. 

While this energy crisis is concerning, it also presents an opportunity. Centrica holds prominent green energy assets and is a market leader in the UK. The gas giant could play a substantial role in providing the infrastructure to help the UK transition.

I am bullish on the company and could be tempted to invest in Centrica shares if there is a significant correction in the coming months.  

The post Here’s why Centrica shares could be a big winner in 2023 appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan 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.

The bull case for BP shares

BP released its 2021 full-year results on February 8. The $12.8bn profit figure stood out immediately to investors, and the share price rose over 4% in the days after the release. By comparison, in 2020, BP saw a $5.7bn loss, the latest figure highlighting the turnaround for the firm. It also announced it had reduced net debt for the seventh consecutive quarter. In my eyes, both these factors highlight the managerial strength of the business, which encourages me to buy the shares.

These impressive results helped boost analyst expectations. JP Morgan increased its target from 590p to 600p, with Morgan Stanley also raising its target from 401p to 465p. As mentioned, the current price is just 378p. This gives me confidence that the shares could be a great long-term investment for my portfolio.

Considering the value of its shares, BP is trading on a forward price-to-earnings ratio of 6.6. This seems good value to me, especially considering the recent high profits. Competitors Shell and ExxonMobil are currently trading with 7.7 and 12.3 P/E ratios, respectively. This suggests to me that the current BP share price is undervalued.

BP share price: bear case

An obvious risk I see for BP shares is the global shift towards net zero and increasing ESG concerns among companies. Although BP has made a concerted effort towards cutting emissions, moving forward it’s going to take a huge amount of investment to keep these projects up. The firm already operates with very slim margins, which will come under pressure from outward investment.

In addition to this, the nature of BP’s business is very cyclical. At the moment, commodity prices are soaring, which is great for the business. However, if oil and gas prices crash, the company is in big trouble. This gives it an element of uncertainty in the long term.

BP announced yesterday its plans to divest its 19.75% stake in Russian oil giant Rosneft, following the Russian invasion of Ukraine. This is expected to result in a costly $25bn in exit charges, largely from foreign exchange. Whilst it has insisted this won’t impact any of its long-term strategic and financial targets, it’s definitely a worrying cost.  

The verdict

All things considered, I think that BP shares could be a great addition to my portfolio at its current price. The cheap valuation certainly looks appealing to me, especially considering the encouraging 2021 results. Therefore I would consider buying the shares for my portfolio today.

The post Should I buy BP shares for my portfolio today? appeared first on The Twelfth Magpie.

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• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Dylan Hood has no position in any of the shares mentioned in this article. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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.