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I bought PA (LSE:BP) shares last month because I thought they looked like great value. I'm already thinking about buying more. Should I take the step?
He FTSE 100 The oil and gas giant looked too cheap to ignore trading at less than six times earnings. Energy stocks tend to be cyclical, and this seemed like a good time to grab BP when it was going down rather than up.
As the energy shock subsided, most of the heat had disappeared from BP's share price. I didn't want to miss the next rally, so I jumped into the water.
Is this a FTSE 100 bargain?
I was also tempted by the dividend. In 2020, the board revised payments to shareholders to 26 cents per share, down from 41 cents a year earlier. This reduced the yield to just over 4%. I had become accustomed to seeing BP shares return above 6% and felt this was something of a dip.
However, with shares falling 16.54% over the past year, BP now has a residual yield of 5.39%. That's comfortably above the FTSE 100 average of 3.54. Better yet, the yield is projected to reach 5.7% this year and exceed 6% in 2025.
Timing stock purchases correctly is mostly luck, but it looks like I got this one right. When I bought BP, the price of oil was falling below $70 a barrel. The tragic and terrifying events in the Middle East have raised it to $78 at the time of writing.
The price of oil rose more than 8% last week, its biggest weekly jump since January 2023. Hopes for a US recovery also played a role, as this will boost demand, as will Chinese stimulus.
I am interested in buying more shares of this
The BP share price is up 7.39% over the last week. Now there is talk that oil is approaching $100 a barrel. Surely that would raise BP's share price a lot. However, I don't have much faith in predictions like that. There are simply too many variables at play.
Neither Washington nor Beijing want oil prices to skyrocket right now. Markets are betting that they will pressure Israel and Iran to maintain control. That may explain why the price of oil has not risen much.
I'm not going to predict where the oil price will go next. And I wouldn't trust anyone who says yes. Oil could easily fall towards $50 a barrel, if rumors that Saudi Arabia could flood the market to gain share are correct. That would hurt the value of my BP shares. Again, it's just speculation.
What I do know is that BP stock still appears to be a good value, despite last week's jump, trading at 6.11 times trailing earnings.
The same long-term challenges remain, as the planet warms but BP struggles to find a future beyond fossil fuels. But I bought the shares with a long-term view, and from that perspective, I still think they look like a strong buy today. I will buy more BP shares the moment I have the cash to do so.