Look for BP to ride the next oil wave

Posted Jul 23rd 2009 5:00PM by Joseph Lazzaro
Filed under: BP p.l.c. ADS (BP), Stocks to Buy

I know: $20 oil beckons, due to weak demand conditions stemming from the U.S./global recessions, and alternate fuel sources are beginning to make their mark.

That said, it remains a world fueled by oil. Hence, I'm Reiterating my Buy rating for BP plc (NYSE: BP), first recommended on March 26, 2009 at a price of $41.72.

After a challenging 2009, look for BP to improve its fundamentals over the next 2-4 years, with continued, superior oil/natural gas reserve replacement, and restructured, more-efficient downstream operations. The First Call FY2009/FY2010 EPS estimates for BP are $3.59 to $5.72.

Bottom Line: the really choppy period for BP is over, institutional investors have sensed this, so the stock should take out its 52-week high at $63.97 later this year. And that's if oil's price stays under $70: an oil price north of that will serve as a nice tail wind for BP.

Stock Analysis: BP plc is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in BP now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your BP position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $27.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: bp, energy, oil