36 reasons why I have no idea where the BP share price is going next (but I still own the stock)
The BP (LSE:BP.) share price has recovered strongly since President Trump upset the worldâs stock markets in April with his announcements on tariffs. However, although up a third since its 12-month low, the stockâs now changing hands for the same price as it was in August 2024.
And this topsy-turvy performance is a reminder of one of the major risks associated with oil and gas shares. Because of the unpredictable nature of energy prices, nobody can tell with any certainty whatâs going to happen next.
Of course, this is true of any share. After all, itâs impossible to see into the future. But S&P Global undertook a major study of US stocks in the 2000s and found that the energy sector was the most volatile of all. Over the past five years, the Financial Times reckons the BP share price has been 36.8% more erratic than the stock market as a whole.
This is not surprising given the wide range of influences on commodity prices. I recently read an article that identified 36 factors that impact oil prices. These range from some of the more obvious things like supply and demand â the former being affected to a large extent by the decisions of OPEC+ — to more subtle influences like refinery shutdowns and the actions of speculators.
However, despite this unpredictability, there are two reasons why I own BP shares.
Good for income
First, I like its dividend.
For the first quarter of its 2020 financial year, it paid 10.50 cents a share. Then, as a reminder that there are never any guarantees when it comes to shareholder returns, it was cut by 50%. Ever since, itâs been steadily increasing and is now at 8.32 cents (6.18p).
Based on todayâs (29 August) share price of 433p, this implies a yield of 5.7%. This puts it just outside the top 10 of FTSE 100 dividend payers. But my yield is slightly better than this because I bought when the share price was lower than it is today.
Untapped potential
I also believe that BP is underperforming compared to some of its rivals. And this was the second reason why I took a position. Irrespective of what happens to oil and gas prices — all companies in the sector are largely affected in the same way â if BP could get its act together then it should be able to attract a higher valuation, one thatâs more in line with some of its peers.
The accounts of energy companies can be complicated and not easily compared. However, looking at operating cash (something thatâs straightforward to measure) relative to market cap, BP lags behind, for example, Shell. But, if the gap could be closed, it would be valued 9% more highly.
| Stock | Market cap (£m) | 12-months operating cash flow (£m) | Ratio |
|---|---|---|---|
| Shell | 135,994 | 36,447 | 3.73 |
| BP | 59,259 | 17,303 | 3.42 |
Even though it’s smaller, BP employs more staff than Shell and, taking into account their respective sizes, its administrative and operating costs are higher.
Activist investor Elliott Investment Management is pushing for changes to be made to make the group more efficient. BPâs managing director appears to be listening so Iâm hopeful that its financial performance will soon improve.
Thatâs why I took a position earlier this year and why likeminded investors could consider adding the stock to their own portfolios.
The post 36 reasons why I have no idea where the BP share price is going next (but I still own the stock) appeared first on The Motley Fool UK.
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More reading
- BP has a 5.4% dividend yield and the shareâs up 65%. Time to buy?
- Whatâs happening to the BP share price?
- Where might the BP share price go from here?
- How much would you need in an ISA to target a £5,000 monthly passive income?
- Where next for the BP share price?
James Beard has positions in Bp P.l.c. 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.
