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- Terrible calamity
- When will you buy BP?
- Potential gains of 800%
The spill in the Gulf Coast near Louisiana is nothing short of a tragedy.
And for certain, it’s a man-made phenomenon. There’s really no telling
how bad this leak will be. There’s concern that it will severely damage
fisheries along the Louisiana
coast. It’s already disrupted shipping in the area. And there’s no
doubt, it’s not a good thing.
Some analysts estimate this leak will cost BP (NYSE: BP) upwards of $3 billion in
cleanup costs alone. BP owns the drilling rig that exploded and caused
the leak. That’s baked into the cake –
BP stock fell nearly 10% last week and another few percent today.
President Obama was quick to blame BP. They
deserve the blame, but I think it’s a bit disingenuous of the President to
angrily point his finger. On March 30th,
less than a month before this leak, President Obama announced his desire to allow
additional offshore oil and natural gas exploration and drilling in the Gulf of Mexico.
It’s upsetting to think about the destruction of the
Gulf’s natural beauty, as well as the loss of livelihood for thousands of
fishermen and other Americans who depend on a healthy ocean for their paycheck.
But at the same time, this type of calamity shouldn’t surprise us. The reality of offshore oil drilling is that sometimes
there is going to be oil spillage. That
is an unfortunate consequence that we have to deal with as a society. I’m frankly surprised that we haven’t had
more disasters from this type of deepwater rig in the past.
I hate to search for profitable investment opportunities
from this disaster – but that’s my job. And, as part of my job, it’s vital for me to point out that oil
companies, especially offshore deepwater oil companies, are extremely unpopular
right now.
That’s exactly when we should be buying. And I realize it feels icky to buy BP right
now. I hesitate to tell anyone to do so,
just because the stock is currently selling off even more. We dumped BP from the Energy World Profits portfolio
last week to lock in a 10% gain – but it’s clear that this company will be a
screaming buy in the future. The company
is already approaching its 52-week lows, and for good reason, but let’s not
lose our heads.
BP is one of the biggest oil companies on the
planet. They have a market cap of over
$150 billion, and had annual gross profits of $63 billion last year. A $3 billion cleanup bill will certainly sting
this company, and I fully expect that number to balloon.
Not to compare the 1989 Exxon (NYSE: XOM) Valdez disaster to the current Louisiana tragedy – but in terms of creating
a buy opportunity, I think it’s a fair comparison.
Investors who bought Exxon one month after the Valdez tanker ran aground
have seen their shares appreciate nearly 800% in the ensuing 21 years. That’s the kind of gain you can only get by
buying when something is cheap and hated.
Right now there’s no question that BP is hated. Our popular President is leading the charge
against BP. President Obama has since
changed his mind about Gulf drilling, and has shut down all new exploration and
drilling in the Gulf. Despite how you
feel about oil companies, and BP in particular, it’s hard to imagine a scenario
where oil prices will fall given the current climate.
My point is: BP isn’t going anywhere. They’ll likely get sued, possibly for
billions of dollars. They’re on the hook
for at least $3 billion in clean up costs. But they have so much income from so many other locations outside of the
Gulf of Mexico, and they’re sitting on over $10 billion in cash, that there’s a
stellar buying opportunity in the near future for BP.
If BP stock approaches 2009 lows of $35 a share, I
think it would be foolish not to buy. Maybe it’s icky, but there’s nothing icky about potential 800%
gains.
We’ll look for buying opportunities over the coming
weeks.
Good investing,
Kevin McElroy
Editor
Resource Prospector