I can understand why some investors might look at the BP (LSE: BP) share price and decide to stay away from the company.
The group is one of the largest public oil producers globally, which used to be a huge asset. Today it is a liability.
As the world starts to move away from hydrocarbon energy, activists are targeting companies like BP for their role in climate change. So far, challenges against these organisations have been limited.
However, some analysts have speculated they could eventually be forced to pay to clean up their environmental damage. This is just speculation at this stage, but it shows how the tide is turning.
With this potential threat lurking in the background, I can see why some investors would want to avoid BP.
But there is far more to the company than its oil and gas production assets. This is what I think the mark is overlooking.
Many different businesses
BP’s operations produce nearly two million barrels of oil per day. This is only part of the group’s operations. It also refines oil, makes petrochemical products, transports hydrocarbons and trades energy. That is without giving the company any credit for its rapidly expanding renewable energy business.
I believe the world will reduce oil consumption over the next few decades. Nevertheless, there will still be a demand for products such as fertiliser and oil derivatives. Some forms of plastic are not going to go away anytime soon, and neither is asphalt or wax. Alternatives are being developed, but many are still in the early stages of development.
And if the oil market closes overnight, BP’s energy traders may still be able to earn a profit for the company.
Then there is the group’s growing renewable energy business. BP aims to establish a pipeline of renewable energy projects totalling 20GW by 2025 and 50GW by the end of the decade.
What I think the market is missing is even if oil demand slowly declines over the next decade, BP should be able to replace lost profits from this business with sales from its renewable energy division.
It also seems unlikely demand for oil and gas will disappear entirely, considering how many products are based around hydrocarbons.
BP share price outlook
Put simply, I think the market is focusing too much on the worst-case scenario for the corporation. Instead, I would focus on BP’s ability to ride and grow with the energy transition. It has the financial resources and international footprint to become a leading renewable energy company while still meeting the demand for petrochemical products.
That is why I would take advantage of the market’s current opinion of the stock. I would acquire the shares while they offer a 4.5% dividend yield and trade at a forward price-to-earnings (P/E) multiple of 7.8.
