FTSE 100 oil stocks have performed rather well in the past year. But it looks like the best is yet to come. As per some analysts, the BP (LSE: BP) share price could almost double in the next year! Let me add here, not all analysts believe this, but some certainly do.
BP share price increase
I just looked at data provided by the Financial Times, according to which the most optimistic analysts believe that the BP share price could rise by more than 96% in the next 12 months! Even the most pessimistic ones pencil in a 3.7% increase.
This means that of the 22 analysts whose forecasts are taken into account, not one believes that the stock could fall from current levels. Moreover, on average, a 25% increase is expected in the stock’s price.
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Decent dividend yield
As an investor in the stock, I find this is super encouraging. Even if I consider the fact that the BP share price might rise only as much as the lowest forecast indicates, I still earn a pretty decent dividend yield on it. Its current yield is 4.6%, which is higher than the FTSE 100 yield of 3.8%.
Encouraging results
The company’s results released a month ago also indicate that there could be good times ahead for the FTSE 100 stock. After reporting a huge $20bn loss in 2020, the company swung into a $7.5bn profit in 2021. Its profit for the final quarter of the year is also higher than that for the corresponding quarter in 2020.
I also like the improvement in its net debt. Debt levels themselves have fallen by $8.3bn and additionally, its profits have risen as well. As a result its ratio of net debt to adjusted earnings before interest, taxes, depreciation, and amortisation, more commonly known as simply EBITDA, is now at one time. In 2020, by comparison, it was at almost two times.
There is more to like. At the price of $60 per barrel for Brent crude, the company expects to deliver share buybacks every year as well as an increase in dividends by 4% up to 2025. So, if the economy continues to grow and oil prices stay elevated I can reasonably expect BP to continue being both an income and growth stock for me.
What I’d do
However, that will only happen if we are indeed out of the woods. In China, coronavirus infections have jumped to a two-year high. And in the UK, there has recently been a rise in the number of patients admitted for Covid-19.
And I have not even talked about the potential impact of the Russia-Ukraine war yet. It might lead to rise in oil prices in the short term, but sustained high inflation is bad news for growth. And that in turn is bad for oil demand.
Doomsday predictions apart, the BP share price looks attractive to me right now. I have already bought the stock, but I think it is a good idea to buy more of it while it is still down.
