The very name BP (BP) conjures a family of associations. BP, the holding company of this British petrol giant, is a heavily vertically integrated company that controls oil production interests from the mining of oil to its refinement to its end-consumer distribution. BP is additionally the largest producer of natural gas in the U.S., an energy source ever increasing in popularity. For all of the mixed sentiment for BP, it was among the first companies to insist on a campaign against global warming and has become a global leader in solar energy.
I argue here for a cautious long-term hold position for BP shares. First, BP is an excellent blue chip stock for a long-term investor. BP’s market capitalization hovers around $140 billion and benefits from a global distribution market. Indeed, I expect BP to outperform due to increases in the overall price-point of crude oil in the near short term. However, this does not make it an excellent vehicle for short-term gains. The forward P/E ratio for BP is not exactly inspiring at around 7.4: Better opportunities exist, for instance, with Andarko Petroleum (APC), which has a forward P/E ratio of around 25.0. Management strategy remains strong in BP, but the execution of a variety of initiatives and their ultimate success is still awaited.
BP is presently slightly undervalued. Its target price is likely around $54, even on a rather conservative estimate. Per barrel, BP earned about $21 in quarter four 2011, compared to $13 in quarter four 2010.To continue reading, click here.