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The BP (LSE: BP) share price has had a rough ride in 2024, as it unwinds most of the gains it made during the energy shock.
So rough, that I couldn’t take resist taking advantage of its reduced valuation, and buying the FTSE 100 oil and gas giant in September and again in November.
Sadly for me, the slide continued. Personally, I’m down 7.5% so far but others have it worse. BP shares are down almost 20% over 12 months.
I’m in no way disheartened. BP is a stock I plan to hold in my portfolio for years, and decades, with luck. The energy sector is notably cyclical, and prone to sudden shifts in fortunes. I expect plenty more ups and downs along the way.
Another reason I bought BP was that I had almost no direct exposure to the energy sector. I’m betting that fossil fuels still have a future despite the pressures of climate change and the green transition. But I’m also concerned that I’m putting myself on the wrong side of that debate.
The world is pouring huge sums into wind, solar, hydrogen and the rest. Coupled with the switch to electric cars, BP could suddenly look like a relic of dirtier times.
Management clearly isn’t ready to look beyond petroleum. That gamble could backfire. It worries me. Yet I don’t think that’s why the shares are so cheap, measured by the price-to-earnings ratio. Stock markets are forward-looking, but not that forward-looking.
BP shares now trade at just 5.93 times trailing earnings. That’s roughly a third of the average FTSE 100 valuation of around 15 times. I thought that presented an unmissable opportunity. Only time will tell if I’m right.
It gives me a superb yield
The share price slump has driven up BP’s yield. Analysts forecast that the 2024 dividend per share of 23.72p will climb to 27p by 2026.
Based on today’s share price of 379.4p, that suggests a forward yield of 7.1%, which is nice going if we get it. So where are the shares heading?
As a £60bn blue-chip, BP is a heavily analysed stock. A total of 26 analysts offer one-year share price forecasts and their guesses produce a median target of 504p. If correct, that’s a stunning increase of almost 33% from today. Combined with that yield, this would give me a total return of almost 40% in 2025. Naturally, I’d be delighted with that. Naturally, there are no guarantees.
Thirty analysts have given BP a stock rating of whom 11 have labelled it a Strong Buy and four a Buy, while 14 say Hold. Only one labels it a Strong Sell.
Broadly, I share their confidence. That’s why I bought the shares.
There are endless risks. How BP fares in 2025 depends on everything from interest rates to Donald Trump to war in Ukraine and the unfathomable workings of OPEC+. I’m looking through all that to bet that in the longer run, BP still has something to sell the world. Today, plenty of analysts seem to agree with me.
