Consider BP, before oil hits triple digits, again

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

Whatever happened to those forecasts for $20-30 oil? Oil, which traded Friday at about $80 per barrel, is up more than 100% in the past 12 months, and the U.S./global economic recoveries have just started, which is why I'm reiterating my Buy rating for BP plc (NYSE: BP), first recommended on March 26, 2009 at a price of $41.72. If you bought BP then, you're up about 30%.

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. Revenue will total only about $220-$230 billion in FY2009, but will rebound to better than $300 billion in FY2010 -- and the latter assumes only a $55-65 per barrel oil price: crude will likely average a much higher price in 2010, assuming the global recovery does not stall.

The First Call FY2009/FY2010 EPS estimates for BP are $3.84 to $5.78. As noted, the 2010 estimate will likely prove to be low. Hence, with a P/E of about 12, BP's shares are still on sale.

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 one month, 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 December 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, fuel, gas, oil