To date, 2023 has not been a terrific year for FTSE 100 shares and investors in British blue-chip businesses.
As I write, the index stands at 7,395.58 points, leaving it down 2.7% over one month. It’s also lost 4.9% of its value over six months and has dropped 0.7% since 30 December. Thus, the index has been a laggard this calendar year, trailing well behind other major market indices.
Many shares look cheap
Despite the Footsie’s poor performance, I see deep value lurking within individual shares. For example, here’s one mega-cap stock I’d gladly buy in a heartbeat (if I had any investable cash to spare, that is).
Should you invest £1,000 in BP right now?
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My beautiful blue-chip bargain is BP
For the record, my wife and I bought BP (LSE: BP) shares in August, paying 484.1p a share. This mega-cap stock then took off, closing at 558p on 18 October, following the Hamas attack on Israel.
But this early gain failed to hold. As the oil price has fallen back, so too has BP’s stock. Coincidentally, as I write it stands at exactly the price we paid for it around three months ago.
That said, we bought into BP for two good reasons. First, as a hedge against our ever-rising energy bills. Second, because it pays generous, well-covered cash dividends to patient shareholders like us.
Ignoring dividends, BP shares are up 1% over one year, but have lost 7.6% over five years. With the Covid-19 crisis now behind us, I’m expecting the next half-decade to be a much happier one for BP shareholders.
It seems undervalued to me
Given current levels of heightened geopolitical uncertainty, I’m surprised that the oil price — and also BP’s share price — is so low. Right now, the shares trade on a depressed multiple of 4.2 times earnings, delivering a bumper earnings yield of 23.8%.
What’s more, these shares offer a dividend yield of 4.7% a year, beating the wider index’s cash yield of 4% a year. Even better, BP’s payout is covered an impressive 5.1 times by earnings. To me, this flood of cash looks as ‘safe as houses’ for now.
Then again, history has taught me that both the oil price and energy stocks can be highly volatile. In addition, a big fall in the price of Brent Crude could hit BP’s future earnings, cash flow and dividends hard.
Another issue is that as an oil & gas supermajor, BP is one of our planet’s biggest polluters. Hence, its shares have fallen out of favour with ESG (environmental, social and governance) investors. As the world transitions to a low-carbon economy, this boycott could prove more troubling for BP.
Nevertheless, I’m delighted to be a BP owner today. Indeed, I’d happily buy more stock as and when the chance presents itself. And if the share price were to continue sliding, then I might bet big on this cheap share!
