Last week was not a good one for investors in BP (LSE: BP). That’s because shares in the oil major have fallen by 5% and could have further to fall in the short run, as investor sentiment seems to be very weak.
However, for investors that are contemplating how they could retire rich, this short-term volatility may present an opportunity. That is, the chance to buy shares in BP while sentiment is at a low ebb and when things appear to be blackest for the company. As a result, BP could present a highly attractive buying opportunity right now and could help you retire rich. Here’s how.
Share Price Fall
The key reasons for BP’s recent share price fall are Russian sanctions and news that it cannot claw back hundreds of millions of dollars in compensation payouts from the Deepwater Horizon oil spill. The first of these reasons is clearly something that BP has no control over: if the US and EU continue to increase sanctions on Russia then it will almost inevitably have a negative impact on the performance of Rosneft, in which BP has a near-20% stake.
Furthermore, it appears as though BP is fighting a losing battle with regards to compensation payouts for the Deepwater Horizon oil spill. Indeed, although it is disappointing for investors in the company, the latest news regarding compensation payments that cannot be clawed back may not prove to be the last downbeat news flow on the issue. In other words, things could get worse for BP in terms of payouts before they get better.
Valuation
However, both of these challenges appear to be fully reflected in BP’s share price. For example, shares in the company currently trade on a price to earnings (P/E) ratio of just 9.3, which is well below the FTSE 100’s P/E of 13.5 and shows that BP could be the subject of a significant upward rating revision over the long run.
Looking Ahead
Indeed, while BP may continue to face further fallout from Russian sanctions and the Deepwater Horizon oil spill, the company’s bottom line holds promise. Despite being a smaller entity than it was a few years ago, BP continues to have a very lucrative asset base that is forecast to increase earnings by 8% next year and could provide strong earnings growth momentum in the long run.
With a yield of 5.3% that is well covered at 2 times, BP seems to offer great value, income potential and bright long-term prospects. Weak sentiment in the short run could prove to be the perfect time to buy in order to aid a wealthier retirement.