BP (LSE: BP) shares have slid 6% in the last 12 months. Since mid-October 2023, they’re down by over 17%. With that, the stock is flirting with its 52-week low.
It’s been a rocky road for the oil giant in the last few years. Its share price fell drastically in 2020 as the pandemic sent the price of oil tumbling. Since then, it’s posted a strong recovery.
But could this latest dip be a great chance for me to swoop in and buy? I certainly think so.
Bargain-hunting
I’m always on the hunt for high-quality undervalued shares. It’s a method that’s served me well in the last few years. In BP, I think I have my next candidate.
With a price-to-earnings (P/E) ratio of around four, it looks dirt cheap. That’s about half the current average of its FTSE 100 peers. What’s more, its forward-looking P/E sits at just six. That’s well below the firm’s historical average.
As if that wasn’t enough, there’s also the draw of a 4.8% dividend yield. It’s projected the firm will bump its dividend for 2024, which is always a positive. That said, it’s worth noting here that dividends are never guaranteed.
The risks
So, that’s an attractive combination. There seems to be plenty to like about BP. But what’s the risk? Well, oil stocks are very volatile. Macroeconomic and geopolitical issues can heavily sway the price of oil. We’ve seen this in recent times with events such as the Russia-Ukraine war.
Another concern is the energy transition. In the last few years, we’ve had governments across the globe, as well as anti-oil protestors, reminding us of the negative impact of the fossil fuel industry. For BP, the threat is clear.
Renewables have grown massively in the last decade. It seems that if oil companies don’t adapt, there’s the risk they’ll get left behind as the world moves to a greener future. We could argue that we’ve already seen this in action. It can seem that nowadays, ESG (environmental, social, governance) investors won’t even touch stocks like BP.
Let’s take a step back
But is that really the case? I’m not sure. I think it’ll be some time before we completely stop using traditional oil and gas products. In my opinion, we’ve still got a long time left relying on them.
On top of that, BP is adapting to long-term trends. For example, it has a sustainability integration plan that has seen it pump billions of dollars into a green transition. This includes areas such as lower-carbon convenience stores as well as increased investment in power trading businesses. Since 2019, its investment budget for this area has grown massively.
I’d rush to buy
At their current price, I think the shares are a steal. The stock looks dirt cheap. The yield is a nice bonus too. And while the industry is volatile, in the years to come, I see potential for share price growth.
February is fast approaching. During the month, I plan on opening a position.
