British Petroleum (BP) Quick Analysis

BP Analysis

Despite all the controversy, is BP a good stock idea?

British Petroleum (NYSE:BP) is a stock idea I’ve been looking at lately. So I wanted to share a part of my analysis with you. I’ll give you a quick overview of my fundamental thesis. And then I’ll share some charts with you so you can see the thought around my buying and selling plans. Does that sound okay?

So let’s cut to the chase, here’s my Quick Analysis of British Petroleum (BP) going into 2014…

BP Quick Fundamental Analysis:

The fundamental value case for BP is pretty obvious. The company’s valuation is still suffering from undefined and somewhat open-ended liabilities from the Gulf of Mexico oil spill a few years ago. Since then, the company’s share price has languished. As a result…

BP’s stock is trading at a huge discount to peers like XOM and CVX on practically every valuation metric. Arguably, money managers are paying a significant premium for the safety of these bigger oil giants. The stock has been dead money since the disastrous spill, but litigation is coming to an end and the company might be on the verge of turning over a new leaf. But there’s something else you should keep in mind.

BP has a book value in the low $40s. These are hard assets that will continue to generate cash, so there is somewhat of a floor in the price of the stock. BP is also winning contracts in the Middle East and Asia. You might also argue the price of oil has been relatively subdued in 2013… (especially considering all the QE!)… Thus materials might be a significant theme going into 2014 and BP could be a profitable way to play the upside. Not only do you get possible capital appreciation from earnings growth and oil prices but, the company pays a high dividend yielding about 5%. That’s not a bad proposition, is it?

But you don’t have to take just my word for it…

Seth Klarman’s Baupost Group also has a sizable position in BP. They’ve reduced their holdings a little bit, but still hold 5.5M shares. I don’t usually pay too much attention to what other traders are doing. But Seth Klarman’s Margin of Safety Philosophy is one I am particularly interested in. On that note, if you invest with the Graham Number, you get a price target of BP for somewhere north of $70.

BP is also becoming more aggressive in pursuing fictitious lawsuits. To be sure, BP should be held accountable for all of the liabilities of their oil spill. But as a shareholder (the cold truth is) it is nice to see management flexing their muscles for you. Another reason I’m interested in BP is because I need some exposure to the energy/commodity/oil space. A lot of my portfolio is focused on financial service companies right now and BP provides a relatively safe play in energy markets where I lack exposure.

But the reason I’m interested in quickly analyzing BP isn’t only fundamental…

British Petroleum (BP) Long Term Technical Analysis:

When I’m considering trading around stock ideas I always want to keep the technical analysis in mind. While I get my conviction from the fundamental analysis I also take technical analysis into consideration for trading. To be fair, my chart work isn’t anything groundbreaking. But looking at the price action keeps you in an objective frame of mind…

Below is a Long Term Weekly chart of BP. You’ll notice that the stock has been trading in a relatively low range for the past few years. More recently, the trading range has tightened up and the stock might be breaking out of the consolidation pattern.

BP Long Term Technical Analysis

BP Long term technical picture might indicate a large base to jump higher from (click to enlarge).

Now let’s zoom in on the technical analysis of BP…

British Petroleum (BP) Short Term Technical Analysis:

While the long term chart pattern analysis for BP is encouraging, the short term technical analysis is also looking increasingly promising. You’ll notice the strong buy volume on the chart below. It looks like large buyers are supporting the price as it slowly gaps higher from the long term consolidation pattern.

BP Short term technical analysis

In the short term, buy volume seems to support a BP breakout to areas of low overhead resistance.

Another interesting feature is the blue horizontal line on the above BP daily chart. This represents long term resistance (also seen on the weekly chart) – and there is something of a “volume vacuum” above that price area. This could indicate a quick move higher for BP in January 2013 if the stock keeps pushing higher. Of course BP is riding the upper Bollinger band so it’s a little tough to chase at this point.

For Full Disclosure: I am long BP from just over $46 and am looking to buy any pullback. Please do your own research as this analysis is for educational purposes and is not intended as a recommendation to buy or sell BP stock.

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