BP stock looks bullish on high dividend yield, new CEO

BP plc New York Stock Exchange: BP The chart shows a stock entering a healthy base formation that often precedes a new rally.

The stock could be an undervalued gem and already has some positive characteristics: BP’s dividend yield is 4.2%, higher than that of energy stocks as a whole. The company has increased its dividend in each of the last three years.

Recent developments, including a new CEO and an activist investor’s push for the company to renew its focus on fossil fuels, could be catalysts for price increases.

The BP chart shows that the current consolidation broke above the low of the most recent structure when it retreated to $33.52 on January 17.

BP stock in new bullish trend

Since then, the stock has rallied and may start to cut into the right side of its base, below the $40.84 buy point. If the uptrend continues, even at a slow pace, it may be worth keeping an eye on the stock as a buy candidate.

When a stock forms a new base and breaks below the previous low, it is often a constructive signal. Selling often attracts new buyers who see potential in the stock, but wait for a more attractive valuation before buying.

This could happen with BP stock.

Revenue and earnings have slowed lately, but that’s consistent with what’s happening with some of the largest energy companies, such as Exxon Mobil Corp. NYSE:XOM and Chevron Corp. New York Stock Exchange: CVXwhich have also seen growth slow due to falling oil prices.

Wall Street expects BP earnings to come to $5.60 a share this year, a decline of 36%. Exxon Mobil is expected to report a decline of 34%, while analysts expect Chevron’s earnings to decline 31%.

Are BP’s sales excessive?

Analysts have reassessed price targets on some energy stocks, on the view that some may be oversold. For example, Exxon Mobil has recently been the subject of analyst upgrades.

BP analysts’ forecasts show a gloomy attitude towards the stock, but again are the sales excessive?

One UK-based hedge fund that thinks so is BP investor Bluebell Capital Partners. News broke on Jan. 30 that Bluebell had sent BP a 30-page letter in October, saying the energy giant should shift its focus back to fossil fuels and cut spending on renewable energy initiatives.

BP said in 2020 that it wanted to reduce hydrocarbon production by 40% by 2023, while increasing spending on clean energy projects, including electric vehicle charging stations, renewable energy and biofuels.

But the move failed to resonate, as institutional investors continued to gravitate toward mega-caps like Chevron and Exxon Mobil, both of which have outperformed BP on a three-year basis.

BP increases investment in fossil fuels

It’s worth noting that while Chevron and Exxon Mobil have made noise about renewable energy, they have continued to invest in their traditional fossil fuel businesses. Both companies have made acquisitions to bolster revenues in that area.

Even before Bluebell’s letter, BP appears to have seen the writing on the wall: In February 2023, the company reversed course, saying it would scale back plans to reduce oil and gas production.

At the time, then-CEO Bernard Looney said: “The conversation three or four years ago was quite unique around cleaner energy, low-carbon energy. Today we’re talking much more about energy security and of energy accessibility”.

Bluebell Capital would like the return to oil and gas production to be even more pronounced. Bluebell estimated that BP shares were undervalued by 50% or more, a startling number.

Bluebell, who calls himself “an activist investor focused on large-cap European public stocks,” said BP’s undervaluation was due to reduced fossil fuel production and diversification into business segments with low expected returns.

The new CEO could give new impetus to BP shares

Bluebell emphasized that it supports renewable energy and has made investments in this sector. However, she said BP is not well positioned to generate strong returns from that business compared to its leadership in fossil fuels.

A return to higher-yielding assets could provide a boost to BP’s earnings and share price.

Another factor in BP’s favor is a new CEO. Murray Auchincloss took the reins of the company on January 17, after serving as interim CEO for several months.

A new CEO is often a catalyst for a price movement in the following months or years, as a new management team brings a new approach to operations and an interest in launching new projects.

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