The stock market crash has destroyed the BP share price! I’d buy it

The stock market crash has driven the BP plc (LON: BP) share price to bargain levels.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you hold shares in BP (LSE: BP), my commiserations. Although, frankly, I could extend those to pretty much every investor right now. The BP share price isn’t exactly the only victim of the stock market crash, as the FTSE 100 dives to 2011 levels.

BP is an interesting case, because Covid-19 isn’t the only threat it faces right now. It’s also in the firing line of the oil price slump, as Brent crude edges ever closer to $30 a barrel. If that wasn’t bad enough, it faces further headwinds from the drive to contain climate change. 

No wonder the BP share price has fallen by half in the last couple of months, from 504p to 255p. The stock market crash is only part of the story.

Stock market crash shock

The coronavirus outbreak is savaging oil demand, as people stop flying, driving and commuting. This could even drive long-term behavioural changes. If companies get used to auto-conferencing, and more people learn the delights of working at home, that would pile long-term pressure on prices, too.

Like many, I am amazed at the current Saudi Arabian strategy. The world’s swing producer (insofar as it’s so important that it can materially affect supply and prices) tried flooding the market with oil several years ago. But US shale drillers showed they could still turn a profit at $35 a barrel. The backdrop now is even less favourable, as the global economy sinks into recession, and the renewables revolution continues.

If Saudi Arabia relented, that would help the BP share price. Alternatively, the falling oil price could drive out low-margin rivals, and trigger a price recovery. If that happens, the current sell-off may have been overdone.

Cheap oil could also hamper investment in renewables, which may not look such a good investment, securing a lifeline for fossil fuels.

I’d buy the BP share price

New BP boss Bernard Looney has a lot to do as he attempts to deliver net zero carbon emissions by 2050, which will require colossal investment in new sources of energy.

Thanks to the stock market crash (down another 7.5% this morning), the BP share price looks amazing value. Last time I wrote about the company, its market-cap stood at £100bn. Today, it’s just £52bn. It now trades at just 8.6 times forecast earnings, with a quite dizzying forward dividend yield of 11.5%, something I never thought I’d see.

BP maintained its dividend through the 2014/15 oil slump, and has been working hard to ensure it can break even with oil at $40 a barrel. Its refining and petrochemical operations should actually benefit from cheaper oil. It could also save money by cutting cut back on some of the $15bn it has earmarked for capital expenditure this year alone.

At today’s price, BP looks too cheap to ignore (although it could get cheaper still). I’d say it’s a contrarian buy, albeit a riskier buy than it used to be.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »