Despite a colossal oil spill that has the world glued to their televisions, British Petroleum stock looks like an excellent buy at this price. Now down 33% from its recent peak, more than twice the decline of Exxon Mobil during the same time, I’d be a net buyer on BP’s devalued stock.
The World Will Forget
Sure, BP might be forced to pay a settlement to all the fishermen, tourism businesses, the regulators etc. And I’d venture to guess that it won’t be cheap. However, this company earned more than $20 billion dollars last year with the average oil price roughly the same as today. This year, it will be just as profitable minus the lawsuits. So, even if it gives up a full year of income, you’re still buying this stock at a price to earnings of SIX!
Check Out That Yield on BP Stock
Again, even if BP has to give up a full year’s income and slash its dividend, 2011 earnings will look amazing. Currently, the stock yields a hefty 8% dividend, which some say will be slashed temporarily to cover litigation costs. So what, it is only temporary, and I’m in for the long haul. This company could easily come back with a similarly high dividend and offer some extreme potential for upside. And please, if you think $67 oil is here to stay you’re out of your mind.
Look at the Options!
People in the option market are running scared at BP stock. Take a look at the January 2012 option prices, most notably for deeply in the money calls. You’ll find that BP isn’t even trading to a premium two years out, and even at the $30 strike you can get a hold of some options for a $2 premium over the current share price. That is nothing! Nothing! Want more protection? Buy the $40 calls at $8.20, the most you can lose is $8.20, the most you have to gain is unlimited. This stock won’t be down for much longer. In fact, I fully expect super contrarian Warren Buffet to hop on board shortly. This stock is it!
Update BP Stock Dividend Suspension June 16
BP has announced it will set up both a recovery fund of $20 billion, a $100 million fund to pay oil workers laid off due to the blast, and suspend its quarterly dividend.