August 23, 2010 | In: Energy

BP Is Looking Delicious at $36

BP is one of my favorite stocks, and I always made money with it. It is currently trading at around $36, which is just $1 over the $35 mark, which is a major support level that causes the stock to spike when touched.

I would (of course, if I had the money) buy 1/3 of my position right now, and then wait for the the stock to move in either direction and buy another 1/3 of my position if goes up or down $2 (though I think it’s very hard to see that $34 level again).

People are now less and less interested in the oil spill after BP secured the well, and there are no more negative news about BP, with the exception, of course, that they have $20 billion to compensate those damaged, among other fees, but that tap is already accounted for in the current stock price, which is trading at 40% below its April high of $60.

Let’s just examine a fair value of BP, after taking into consideration $30 billion, and not $20 billion of expenses because of the oil spill.

Back in April, the market capitalization of BP was $60 x 3.13 Billion shares = $187 Billion, but that was at the year’s peak, so let’s take a low price of $52 (during February) and estimate the market capitalization. Market Capitalization (fair) = $52 * 3.13 Billion shares = $162 Billion. Let us subtract the $30 Billion of different expenses and we get $132 Billion. Now let’s divide that by the number of shares: 132 / 3.13 = $42. That is probably a very fair value of BP at the moment, and if you notice, the stock reached that peak on August 6th (a couple of weeks ago) before retreating.

BUT, if we compare the current oil price to previous months, we see that it’s almost identical to March’s, where the stock averaged $56 and the market capitalization was $175 Billion. Let us subtract $30 billion of expenses from this amount, and we get $145 billion, now let’s divide that by the number of shares: 145/3.13 = $46.

BUT BUT, BP is selling assets like crazy (they’re selling different non-critical operations in several parts of the world), and the American public still hates the company. Although the sales of assets can be considered part of the $30 billion expense.

SO, the stock will probably settle at around $44, but I would never ever buy the stock above $40, unless crude goes above $80.

BP is underpriced by $10 at this very moment even when considering that the total expenses are $30 billion, but don’t expect the market to jump these $10 tomorrow. It’ll take time, but BP is always an excellent investment, and oil (because of the huge demand in emerging economies), has nowhere else to go but UP.

2 Responses to BP Is Looking Delicious at $36

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HAL, BP, RIG and the Blame Game « Fadi El-Eter

October 28th, 2010 at 11:01 pm

[...] corrected by what happened in the gulf. The stock’s fair price when crude is around $80 is around $44, and in case it was deemed that Halliburton has to pay for this (which is very unlikely), the stock [...]

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Is BP Undervalued? « Fadi El-Eter

April 19th, 2011 at 6:18 pm

[...] have analyzed the price of BP a while ago, and I concluded that a fair price for this stock is around $44, when crude (NYMEX) is around $80 [...]

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