To Profit From Rising Oil, Consider Shares of BP

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If you are tired of spending at the pump, one way to lessen the hit is to invest in oil companies and profit from their rising revenue. My recommendation: Buy shares of BP p.l.c. (BP). I put out a buy recommendation on this stock on March 26, 2009 and if you bought shares at that time, you are up about 45%. But the stock has further to go, so I am reiterating my buy rating at a price of $41.72.Why buy shares now? I expect BP to improve its fundamentals over the next two to four years, with continued, superior oil/natural gas reserve replacement, and restructured, more-efficient downstream operations. Revenue will total about $225 billion in fiscal 2009, but will rebound to more than $300 billion in fiscal year 2010 -- and that assumes that oil will be priced at just $55 to $65 per barrel. Chances are god that crude will average a much higher price in 2010, assuming the global recovery does not stall.

Analysts are optimistic about the shares as well. The First Call FY2009/FY2010 earnings per share estimates for BP are $4.77 to $6.47. That $6.47 FY2010 earnings estimate will likely prove to be low. Technically, BP's chart looks beautiful -- an uptrend, and a price that continually stays above the key, 50-day moving average -- a sign that institutional investors are establishing or adding to their positions. According to my analysis, BP is headed north.

Finally, the Sell/Stop Loss has been raised to $42 from $27, or to just above the entry point; hence, this is a zero-risk trade for your March 2009-bought shares.

2010 Outlook: BP is a long-term play, but if you need to sell within the year, take your profits after it rises to $74 or if it fails to clear $75 per share.

Stock Analysis:
BP is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% 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 March 2010. Revised Sell/Stop Loss if you bought shares in this company: $42.

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