BP PLC (BP)

BP recently made a big acquisition that the market liked. Its balance sheet is reasonable and its last earnings results were good. It recently increased its dividend. Oil is finding a level at $70 or higher, which is good for BP.

He still likes it. They got their cost structure down. It is a free cash flower with a 5% dividend. The dividend will remain if oil drops to $50. The balance sheet is in good shape.

(A Top Pick May 16, 2017, Up 20%) Lots of free cash flow which covers their dividend, unlike other companies that borrow money to. He expects dividend increases. They're actually investing big in renewables. Big oil is investing their profits in green because they see renewables as their future in 20 years as oil declines.

This was the big oil leak in the Gulf of Mexico. The US changed the rules and applied therapeutic sanctions and retroactively wrote legislation. The company had to sell off some assets and slowly started to rebuild. European oil is starting to recover quite nicely and generally had a decent year. The company has started to go back into exploration, and is now starting to be followed by the other majors. Assuming the conditions of OPEC supply constraint remain, the Saudi/Aramco goes public, then longer-term we will see a higher energy price, but it won't be immediate. A company like this will do okay. Thinks it has a more upside. Prefers Royal Dutch Shell.

It is an ADR so she does not typically trade it. It has been out of favour, however. She is hesitant to jump into any energy stocks.

Compared with other integrateds?A company that makes money at $50 oil. Part of their business benefits from oil prices, petrochemicals and refining. They are earning their hefty 6% level dividend with their own free cash flow. These large integrateds are going to underperform if oil does really, really well. They are using their free cash flow to make intelligent acquisitions. Rising dividends are in the cards even if oil stays at $50.

The Macondo Gulf of Mexico disaster is now past and they have taken all the charges. They’ve rebuilt the company. The balance sheet is in very strong shape. With the cost structure where it is, even at these commodity prices, this company is throwing off lots of cash flow. Dividend yield of 6.7% is sustainable at current commodity prices. This is the cheapest of all the major integrateds. (Analysts’ price target is $37.50.)

He thinks oil prices have bottomed and will start to move higher in fits and starts. They had issues in the past that are behind them now. They are a good company to own and are a cash cow.

At current oil prices, most European oil companies are going to cover the dividends. Most of the baggage for this company is now behind them. As we get into an environment where oil starts to stabilize politically, at around the current price and a little higher, then you will start to see yield compression. You are looking at some pretty decent upside from here. An interesting company and the balance sheet is reasonable. 6.5% dividend yield.

One thing is that safety issues are not new to this company. Within the majors that operate within the US, this has been the one with the worst safety record. You can’t attract and retain quality employees if they are concerned about health and safety. Also, they have basically run all of their foreign operations through the US, so they are very exposed in terms of liability. He also is not interested in investing in oil and gas.