As I write late on Friday afternoon, the FTSE 100 is up over 110 points (1.9%) this week. It’s a similar story on the other side of the Atlantic. The S&P 500 is up close to 100 points (2.8%) since last Friday, its best week since August.
The S&P 500 has crushed the FTSE 100 in 2020
Then again, the FTSE 100 is up just 0.2% over the past month, while the S&P 500 has climbed by 1.9% over the same period. Alas, over the course of 2020 so far, the FTSE 100 has crashed by 20.9%, while the S&P 500 is actually ahead by 6.4%.
Why the huge differential between the two main market indexes in the UK and US? For me, the obvious answer is that UK mega-caps have performed terribly in 2020. On the other hand, US mega-techs have boomed to new highs, adding trillions of dollars in capital gains.
This FTSE 100 share has dived 15% in a month
What’s more, the bigger the FTSE 100 company, the harder its shares have fallen in 2020. Take, for example, oil & gas explorer and producer BP (LSE: BP), whose stock has been crushed this year. Indeed, it’s got so bad for its shareholders that I am reluctant to call BP a ‘supermajor’ these days.
For the record, this FTSE 100 share is down 40p (15.2%) over the past month alone. In this calendar year, BP shares have more than halved, down 51.3%. And, over the past year, they have crashed 56.1%. Urgh.
As a result of this brutal loss of value, BP is worth a mere £44.7bn today. At its 52-week high of 521.5p, hit on 5 November 2019, BP was worth £105bn. Thus, between them, BP shareholders have lost an incredible £60bn in 11 months. That’s a staggering sum – equal to roughly 3% of the current value of the FTSE 100 as a whole.
BP’s brutal fall is in the past. Look to the future…
As a veteran of value investing, I’m not afraid to buy FTSE 100 shares that appear to be endlessly descending towards zero. After all, that’s the point: like Warren Buffett, I’m eager to buy into great businesses at fair prices.
In other words, falling share prices are the friend of the long-term value investor. BP shares may be almost on the floor, but I don’t believe the same can be said about the underlying business.
Today, BP remains a ‘Big Player’ in energy. The FTSE 100 firm operates in 79 countries and employs over 70,000 people (before perhaps 10,000 job cuts to come). It produces 3.8mn barrels of oil equivalent per day, which is an incredible 4% of global oil output. It also has 19.3bn barrels of oil equivalent in proven reserves, worth $833bn at today’s oil price.
To sum up, if I could borrow £45bn today, I would happily buy BP in its entirety. Although BP halved its dividend earlier this year, it’s still a tasty 16.14p a year per share. At today’s price of 222.1p, that’s a dividend yield of 7.27% a year. Hence, I’d buy and hold BP for this gusher of quarterly cash payouts, as well as for future capital gains!
