Sunday, January 17, 2016

"The US markets got clobbered last week. Worst start to a new year EVER. So there must be some value picks that provide a margin of safety. I like BP plc ADR right here with the combo of dividend and potential cap gain. This is not a trade it is an investment"

Dow Jones Industrial Average 15,988  (WAY Down!) Week ending 01-15-2016

Oh brother, what a pounding we took last week. Hope that you didn't sell out of all your long term investments. I hope you still have some cash on hand to take advantage of some current bargains. 

They keep telling us that it is the end of the world for oil and that prices will continue to dive. My feeling is that we have come down on Brent Crude from 145.61 in July of 2008 to now $29.20 in January 2016 , (Oddly that is almost the exact price of a BP plc ADR share, (Symbol BP, $29.16), and that most of the correction has already happened and we are damn near a bottom on the price. 

This is a value/total return investment play for a two year investment. The BP dividend yield currently of 8.23% and with BP having more of a priority to maintain their dividend then to buy back shares, even a rise in the price from here to the $32 or $33 dollar area would be a 10 plus% added with the dividend would be an 18% investment return.  That is a fine number with me. In the short term, the stock price could go lower, but I think its steady dividend will hold it up at a decent price level . The company has $23.61 Billion in cash and short term investments. Last quarter, even at reduced revenue numbers, the company did $35 Billion dollars in revenue for the quarter.

Although my normal PEG Ratio and ROE numbers, (3.07) don't hold up well here, the company is trading at a  Price to Book ratio of less than One, (0.88), and a Price to Cash Flow of 2.8. The current PE is 14.3 and the forward PE is projected at 16.43 so not off the chart numbers. The BP ADR is projecting a $1.56 earnings per share for this year.

The company has also cost righted itself and diversified geographically and in business mix. The company is also involved in research and products in super thin membrane technology , Ultra Thin Membranes. They have anticipated this oil price drop for the last couple years and have adjusted operations accordingly.

Many products and base compounds for many industries are made from Oil. Demand for Oil remains very strong with only a 1 million barrel front end surplus right now. (Boone Pickens said so!), as the number of rigs in the US continues to drop. You need to be thinking long term investment here!

If you feel you need to be in there trading and speculating on oil for a trade, I would probably look to lean to buy some Whiting Petroleum, (Symbol WLL, $5.70), but you are on your own with that one for a trade. The better idea is to buy BP and hold it for awhile!!.

You could also wait a week and then buy BP and that might work out just as well. No reason to be in a big hurry here.

If you are an investor there is nowhere to go but up!

Invest, don't speculate.


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