To Profit From Rising Oil, Consider Shares of BP

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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