It’s been a pretty good 2021 for shareholders in BP (LSE: BP). The BP share price has easily beaten the FTSE 100 index so far this calendar year and is currently close to £3. Alas, BP shares were a horror show in 2020 as tens of billions of pounds were wiped from its market value.
The BP share price crashed in 2020
At the end of 2019, before the Covid-19 pandemic overwhelmed the world, the BP share price was doing just fine. It closed at 471.6p on 31 December 2019, having eased back from peaking above £6 in October 2018. However, as coronavirus infections soared, the oil price slumped and the shares went into freefall.
By 28 October 2020, the share price had crashed gruesomely. On that day, it reached a low of 188.52p, down three-fifths (60%) in 2020. But that marked the absolute bottom for BP shares, which later bounced back to close at 193.44p. As a veteran value investor, I claimed that BP stock was incredibly cheap at that time. Indeed, on that very day, I argued that the oil supermajor was a huge bargain with its shares at a generational low. I said, “it’s time for bold investors…to bite the bullet and buy [BP] big.”
BP’s been a gusher since late October
The best possible news for shareholders arrived in early November, as several effective Covid-19 vaccines were unveiled. Since then, the BP share price has gushed upwards for much of the past six months. As I write, the shares trade around 294p. That’s a gain of five-ninths (56%) in less than six months. Furthermore, BP stock is up almost a sixth (15.4%) in this calendar year, more than double the FTSE 100’s 7.2% gain in 2021. However, the share price did hit its 2021 high of 323.45p on 12 March, so it has slipped back over the past six weeks.
Could BP scale its former heights?
My first warning is that predicting share prices, especially over the short term, is a mug’s game. It’s about as reliable as astrology or reading tarot cards. Almost exactly 11 years ago to the day, I predicted that the BP share price would rebound strongly after the Deepwater Horizon disaster. As it happens, I was spot on. BP shares surged from below £3 to over £5 within six months.
However, the Covid-19 crisis is on a vastly bigger scale and has affected every company on earth and not just BP. Still, the Brent Crude oil price has more than quadrupled from below $16 a year ago to over $65 today. Obviously, the higher the oil price, the more support for the BP share price, earnings and profits. Of course, oil demand was utterly crushed in 2020. If it does fail to rebound strongly in 2021/22, then this would spell bad news for BP.
BP has been around since 1908, which is 113 years. It also sells millions of barrels of oil each day, generating vast cash flows. This supports a juicy dividend yield of 6.4% a year. If you twisted my arm, and based on fundamentals, I’d say the BP share price could hit £5 — by rising seventh-tenths (70%) — within the next 24 to 30 months. However, if the global economy fails to boom, then I might have to double that timeframe!
So would I buy? Regardless of how long it takes BP to hit £5, I’d be happy to own the stock at the current price.