BP a good buy

Hi phantom,
two questions:
1. As Dirty pointed out, XOM is also near it's 52 low - how do you see these two against each other or perhaps a combined position will work best.
2. As energy retracts, do you still think this is a good position to get into right now?

Hi guliamo and thanks for the reply,
I must say I prefer BP over XOM for two reasons, number one BP's support has been in place for 4 years now which makes it a stronger support than XOMs one year support level. The other reason is that BP's dividend is 5.5% where as XOM’s is 2% so with BP if the share price falls 5% I can still get out without losing money, however with XOM I would be down 3%.

All that said I think XOM is oversold at the moment, however the ideal buy would have been near $75 dollars a share long term tend line from 2004 and also previous resistance line broken from 2007 which would have acted as support. On the 5 year chart of XOM it looks like it’s in an ascending triangle which is bullish continuation, also XOM earnings were up again this month which is good news of the fundamental side. So on that at least the share should be going up, if you bought XOM now you could also have the safety of the 2% dividend in case things turned against you.
Overall though I prefer a buy on BP just for the fact its been at these levels for years where as XOM has seen an explosion in its share price over the last 4 years, XOM since 2005 up 60% BP since 2005 less than 5% up.

In regards to your other question I see oil dropping to around the 95-100 dollars a barrel level by the end of this year, so still a fair bit off from where we are currently, however again as I said bp's share price has stayed the same for 4 years. four years ago the price of oil was around $60 a barrel and back then bp's share price was $60 a share, now oils at $118ish a barrel and bp's share price is at $60 again. sounds like a bargain and again even if the price of oil falls to 95-100 a barrel its still trading nearly 80% up from 2005 level. so i cant see bp falling on that.

You asked whether this is a good position to get into right now, I feel that the dividend is all important on the oil shares, BP goes ex in a week and there is 5.5% divi on the table, this means that if we bought at $60 we would have to fall to $56.7 to enter into a loss I think that, given the level around $60 has acted as support for so long that it is unlikely to get to 56.7 if it does however then I could close my trade for no loss and no profit , however if it jumps back up anywhere inbetween 66-78 then I get a 5.5% divi with a 10-30% growth in the share price. Again the divi is why I prefer BP over XOM that extra bit of insurance protects you if the price moves against you.

Hope this proved useful

I agree on principal that a nigh dividend commitment is key for a large oil company.. if they don't share now, then when?
Do you factor in the fact that BP has more of it's revenue coming in from foreign countries (mainly euro)?
this sounds like a good dollar hedge as well.
I'm reluctant to go into oil just to pick up a dividend though.. dividend price is factored into the stock value as a measure of how close the dividend date is, so I suppose the stock will make a technical correction down on August 14th.

Hi guliamo and thanks for the reply,
I must admit you make a very good point about BP being a good dollar hedge. I never really thought of it that way, but that would make a case for BP to have even higher earnings due to the rise in oil and the devaluing of the dollar. They win twice on this! :) This could however be bad if the euro decreased against the dollar!! :( But at the moment the euro seems on a long upward trend against the dollar.
I agree that you usually get a correction down before the dividend and we might well get one with BP, However I just cant see it staying below $60 a share, there is no case for it, earnings have been increasing year on year and $60 has always held before, therefore I see no reason for the support to fail. I just think that BP is an absolute gem of a share at the moment. I may of course be completely wrong and the share price may fall straight through $60 a share lol haha but I hope that it doesn't :)

To some extent, any internationally-traded commodity is a hedge against a weakening currency. I expect the US dollar to continue to decline against other major currencies in the long term. Since oil is traded worldwide in dollars and, in the case of BP, sold to purchasers using strong Euros and these earnings repatriated in pounds, currency fluctuations are something to take into account.

5.5% is certainly a nice dividend, and BP also gets you their expertise in solar, if that's of any interest.

My own choice among the large integrateds was Conoco-Phillips (COP) for the big margin of safety: at the time I bought it I estimated a 40% discount to intrinsic value. It's less undervalued now. I also own Brazil's PBR, and Sasol (SSL), which operates in South Africa and has an interesting synfuel process. Both of those are worth a close look. One of my favorite small companies is Dawson Geophysical (DWSN) which provides "picks and shovels" to the majors in the form of seismic imaging services. I see lots of room for growth there.

Hi Ben,
I'm researching your Dawson Geographical recommendation..
Fundamentals look really good. I'm a small cap hunter and this one works as far as the set of ratios I apply, I love small companies with ROE's above 20..
I was surprised to find a negative cash flow for this kind of company. Looking at the cash flow statement i found the reason for the negative cash flow is a 58 million dollar expense on 'Capital Expenditures' - but I can't seem to find the source for this huge expense..
(http://fin​ance.yahoo.​com/q/cf?s=​DWSN&annual)
Are they borrowing a lot?
Thanks,
BT.

Do we know know how big the Solar part of BP's business is?
I could get some BP and dilute some of my WFR position, though I'm not sure now is the best time to trim WFR which has tanked on me recently..
I'm convinced BP is a better idea than XOM but I'm already 32% in energy, so would only take a position swapping some CHK or WFR for BP, what do you guys think?
Cheers.

Very interesting discussion. My biggest involvement in the oil side has been with Atwood Oceanics, the offshore driller (ATW). They have retraced hugely recently but I am in for the long haul. Oil on land was the easy stuff to find, now the desperate humans go look in the ocean.

I will definitely take a look at DWSN.

It's funny how commodities don't always seem to follow the currency inversion one would expect. The dollar continues to languish but silver, which has "money" properties, is way down. I guess that's why we buy on dips and sell on peaks but it's puzzling to say the least.

Hey all, not sure on the whole solar part of BP but sounds interesting .... By any chance does anyone know of any company researching or involved in the use or development of fusion power?

you mean like nuclear energy?

One comment on XOM from Marketwatch:

-- Exxon Mobil cannot absorb all of the money it is making now. Exxon Mobil spent 46 percent more money buying its stock back in the first half of this year ($18.2 billion) than it did on exploration and capital expenditures ($12.5 billion).


At these prices, and XOM's cash position, it wouldn't be surprising news if they announced more buybacks. I believe this should be factored into the decision making process as well.

At this time fusion ( H + H = Helium) is impractical for energy generation and only occurs in the conditions of high temperature and pressure found in a fission ( Uranium or L=Plutonium) detonation. As far as I know cold fusion has not even been achieved in the labratory. If ever achieved this would be the key to an unlimited source of energy. Literally, it would be harnessing the source of power found in the sun.

Hi guys,
looks like BP has broken the line and on a day that oil is actually going up.. any thoughts on this?

It looks like Bp has a pipeline involved in the Georgia conflict that closed down. This is just short term. How much did they lose in the TNK-BP joint venture. here is a quote from Rupert Murdoch from the WSJ on 8/11

http://blo​gs.wsj.com/d​eals/2008/0​8/11/mean-st​reet-russia​-says-we-wil​l-bury-you-s​hareholders/

A week ago, in talking about News Corp. in Russia, Murdoch observed, “We have great growing business there but…the more I read about investments in Russia, the less I like the feel of it. The more successful we’d be, the more vulnerable we’d be to have it stolen from us, so there we sell now.”

Incredible..
I wonder if Russia is actually targeting the pipe or just teaching Georgia a lesson everyone else knows - "If you're gonna poke the bear in the nutts, better make sure he's tide up".. hehe
My vote is that the pipe will go back on-line but definitely food for thought on how the global economy depends on a pipe.. I think Murdoch has a point.

While I feel the energy sector is going to weather the upcoming recession better than others, I still think its going to be an overall loser (like everything else) in the short-term. Stick to cash an pick up the pieces after the storm passes.

RE: Alternative energy.

I use the window test. When I can look out the window and see a solar panel, windmill or alternative-fuel car, then it will be time to start investing in that area. We are still at least 5-10 years away from that, IMHO.

Re: solar

BP's solar business is admittedly small now in terms of contribution to the overall bottom line. From a window in Nicosia, you can see lots of solar panels and hot water heaters with the BP logo (free advertising). Of course, Cyprus is sunny, and gas is something like 4 Euros the liter. Their experience in manufacturing and marketing the technology is scalable, when demand for it increases in other markets (e.g., the U.S.). My crystal ball is a bit evasive regarding when that will be.

Re: DWSN

I can't find the message I wrote to Blacktuna about this one. In short, capex is so high because of increased investment in crews and equipment. Existing crews are booked. Debt is very low.

Hi ben,
Here you go.. :)


I'm researching your Dawson Geographical recommendation..
Fundamentals look really good. I'm a small cap hunter and this one works as far as the set of ratios I apply, I love small companies with ROE's above 20..
I was surprised to find a negative cash flow for this kind of company. Looking at the cash flow statement i found the reason for the negative cash flow is a 58 million dollar expense on 'Capital Expenditures' - but I can't seem to find the source for this huge expense..
(http://fin​​​ance.yahoo.​​​com/q/cf?s=​​​DWSN&annual)
Are they borrowing a lot?
Thanks,
BT.


Aug 09 at 9:20 ET

BenGraham


They don't usually run that kind of capex. They've been adding crews and equipment, financed through earnings (debt is minimal at 0.114 /equity). I think the Q3 conference call should still be available on their website.
In my experience, this management team doesn't just burn cash for the heck of it: I think they expect their big domestic clients like Chesapeake (CHK) to do a lot more exploration in the next few years. And in fact CHK has been buying up drilling rights in N America.

Reuters article on the Q3 results:

http://www.reute​rs.com/articl​e/mar​ketsNews​/idINBNG38​657​20080731?rpc=44

A number of people over at the Motley Fool follow Dawson:

http://ww​w​.fool.com​/​investing​/​small-cap/​​2008/07/31​​/a-pair-of-​​seismic-si​​zzlers.aspx
http://ww​w​.fool.com​/​investing​/​small-cap/​​2008/08/05​​/the-cheap​​est-stock-​​around.aspx

The second piece is more an ad for one of their newsletters, but links to other articles discussing DWSN.