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PA The stock (LSE: BP) had a bumpy 2024. Measured over 12 months, they fell 13.5%. Despite the juicy final yield of 5.51%, investors are in the red.
This is largely due to the energy shock that is unraveling. BP's share price soared in 2022, after Russia invaded Ukraine. Last year, when oil fell towards $70 a barrel, the only way out was down.
That doesn't worry me. The energy sector is more cyclical than most. Indeed, herein lies the opportunity. The time to invest in cyclical stocks is when they are going down, rather than going up. That's why I bought BP twice in the fall.
Will this energy stock be able to fly in 2025?
I've had a bumpy ride so far, but things are starting to look up and there could be more to come. Analysts certainly think so.
The 26 analysts offering one-year share price forecasts have produced an average target of 502p. That's more than 23% more than today. But that's not the only reward investors could expect.
The stock is expected to return an attractive 6.55% this year, which is a brilliant rate of earnings. This leaves investors looking at a potential total return of 30% in 2025. Personally, I'd be thrilled with that.
Of course, forecasts are a slippery thing. A long-awaited peace deal in Ukraine could send energy prices tumbling, depending on the terms of the deal. Just like another year of high interest rates and low economic growth. So could President-elect Donald Trump's plans to increase fossil fuel production. Cheaper oil is usually bad for BP.
Alternatively, Trump could surprise everyone by burying the US-China trade war (an outside bet, but it could happen). A Chinese economic recovery would increase demand. Personally, I have no idea what's going to happen. Forecasts are fun but I don't believe in them.
Cheap as chips and brilliant performance
So what about BP itself? On Oct. 29, it posted its weakest quarterly profit since the pandemic due to falling oil prices and shrinking margins in its refining business. It still made underlying profits of almost $2.3 billion for the three months to September 30, beating the $2 billion that analysts had forecast (get what I mean by forecast?).
There was also good news when new CEO Murray Auchincloss pledged to keep BP's quarterly share buybacks at $1.75 billion per quarter. This is the third way BP will reward investors this year.
BP stock looks incredibly cheap with a price-to-earnings (P/E) ratio of just 5.8. UK shares are routinely undervalued these days, but that's well below average. FTSE 100 P/E of around 15 times.
Of course, shares could get even cheaper if energy prices fall. Furthermore, BP has yet to navigate the green transition. It's not a complete failure on this front. On Dec. 9, the board said it was combining offshore wind operations with Japan's largest power generation company. LIST. The new offshore wind entity will be one of the largest in the world.
I will buy more BP shares as soon as I can raise the cash. Taking a long-term view, I think it's an obvious purchase for me. Especially at the current price.
