Why BP plc Is A Great Share For Novice Investors

BP plc (LON: BP) might have more risk, but it’s still a sound investment.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When I took a look at Royal Dutch Shell a couple of weeks ago and told you why I think it’s a great share for novices, part of my reasoning was that Shell carries lower upstream risk and has better global diversity than BP (LSE: BP) (NYSE: BP.US).

So does that mean I don’t rate BP as an investment for novices? Actually, no, I think BP is a pretty good one too — in fact, I have it in the Fool’s Beginners’ Portfolio. In the long run, I think BP will serve us well. Here’s why:

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

What risk?

About 17% of BP’s turnover comes from its upstream exploration and production business, which does place it at higher risk than Shell with just 9%. And when the Deepwater Horizon well blew and spewed crude oil all over the Gulf of Mexico, we saw what that risk can look like when it really goes bad. The disaster cost 11 people their lives, and created an ecological and economic nightmare for many.

So it would have cost BP investors dear, you’d have thought? Actually, the damage to your portfolio would have been a good bit lighter than you might imagine.

OK, at the last count, the cost to BP had come to more than $42bn and it has had to dispose of a number of assets to raise cash. That’s a lot of  money, but to put it into perspective, BP’s 2012 revenue topped $388bn!

The share price

What’s been happening to BP’s share price? Well, the day before the disaster, the shares closed at 640p. Today, three and a half years later, they’re 30% down on that at around 450p, which is undoubtedly a bummer.

But there have been dividend payments, and though they were slashed in the aftermath, in the period since then you’d have earned a total of 47 pence per share. So your 640p on April 19, 2010, would be worth 497p, which lowers the loss to 22%.

That’s still not an investment performance to retire on. But it is the loss from — and get this — the largest accidental marine oil spill ever in the history of the oil business!

If that’s as bad as it gets, we should be praising BP as an amazingly safe and resilient investment rather than condemning it as one of high risk.

No shocks please

Now, I know one of the things I really urge novices to avoid is the possibility of short-term loss, and the short-term loss at the time could well have scared newcomers away.

But the Deepwater Horizon horror really is the kind of thing that almost never happens, and it’s at the level of risk that is really not much higher than investing in shares in general and which we can not realistically avoid. Your chance of losing money is far higher if you invest in profitless blue-sky prospects, overpriced “get-rich-quick” bubbles, or whatever the sots down the pub are raving about.

If you’d bought BP shares at their peak price just before the fan turned brown, you’d still almost certainly be looking at a very desirable overall return in the decades ahead, with considerably lower risk than one might intuitively think.

Nice yield

And you’d be on for a better-than-average 3.6% dividend yield this year based on your original buy price even if you’d bought right at the top — and 5.2% if you topped up today. And it’s heading upwards, year on year.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Alan does not own any shares mentioned in this article.

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »