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BP (LSE: BP) shares had a bumpy 2024. Measured over 12 months, they’re down 13.5%. Despite the juicy trailing yield of 5.51%, investors are in the red.
That’s largely down to the unravelling energy shock. The BP share price rocketed in 2022, after Russia invaded Ukraine. Last year, with oil sliding towards $70 a barrel, the only way was down.
That doesn’t worry me. The energy sector is more cyclical than most. In fact, herein lies the opportunity. The time to invest in cyclical stocks is when they’re down, rather than up. Which is why I bought BP twice in the autumn.
Can this energy stock fly in 2025?
I’ve had a bumpy ride so far but things are starting to look up, and there could be more to come. Analysts certainly think so.
The 26 analysts offering one-year share price forecasts have produced a median target of 502p. That’s up more than 23% from today. But that’s not the only reward investors might look forward to.
The shares are forecast to yield a handsome 6.55% this year, which is a brilliant rate of income. This leaves investors looking at a potential total return of 30% in 2025. Personally, I’d be delighted with that.
Forecasts are slippery things of course. A longed-for peace deal in Ukraine could knock energy prices, depending on the terms of the deal. As could another year of high interest rates and low economic growth. So could President-elect Donald Trump’s plans to ramp up fossil fuel production. Cheaper oil is usually bad for BP.
Alternatively, Trump could surprise everyone by burying the US-China trade war (an outside bet but it could happen). A Chinese economic revival would drive up demand. Personally, I’ve no idea what’s going to happen. Forecasts are fun but I don’t believe in them.
Cheap as chips and a brilliant yield
So what about BP itself? On 29 October, it posted its weakest quarterly profits since the pandemic due to the oil price slump and narrowing margins in its refinery business. It still made underlying profits of almost $2.3bn for the three months to September 30, beating the $2bn analysts had predicted (see what I mean about forecasts?).
There was good news in there too as newish CEO Murray Auchincloss pledged to maintain BP’s quarterly share buybacks at $1.75bn a quarter. So that’s the third way BP will reward investors this year.
BP shares looking incredibly cheap with a price-to-earnings (P/E) ratio of just 5.8. UK stocks are routinely undervalued these days but that’s way below the average FTSE 100 P/E of around 15 times.
Of course, the shares could get cheaper still if energy prices plunge. Plus BP still has to navigate the green transition. It’s not a complete failure on this front. On 9 December, the board said it was combining offshore wind operations with Japan’s largest power generation company JERA. The new offshore wind entity will be one of the world’s biggest.
I’ll buy more BP shares as soon as I can raise the cash. With a long-term view, I think they’re a no-brainer buy for me. Especially at today’s price.
