Will BP shares bounce back?

Will BP shares bounce back?

Tej Kohli | 16 March 2020

Image source: Getty Images

“Our favourite holding period is forever” says Warren Buffett. This is sage advice.

As long as you are choosing stocks that can withstand short-term shocks, and reinvesting your dividends to attain compound growth, then over a long-term time horizon the growth of your investment is more-or-less assured. I hold a lot of stocks that I never plan to sell.

Bears return from hibernation Page | 1 Tej Kohli is a technologist and investor who is also the founder of the not-for-profit Tej Kohli Foundation. Tej Kohli regularly writes #TejTalks blogs on Medium about subjects including blindness, inequality, poverty, global health and technology transfer. Tej Kohli also blogs on Ghost and The Motley Fool about subjects including real estate, cryptocurrency, deep tech and stock market investing. Tej Kohli also shares his daily wisdom, commentary and insights on Twitter, LinkedIn and Facebook as @MrTejKohli. #TejTalks can be downloaded from Issuu.

In the last few weeks global markets have plunged, and like many other investors I have been reminded to be brave when others are fearful and of the merits of a contrarian approach to stock picking. As the global markets plunge and fears grow that the shock will cause a severe global downturn, I am being inevitably and repeatedly asked the same questions: Where and when will be the bottom of this new bear market? When will be the right time to start taking long positions once again? Which stocks should I then back?

That the bear market has been triggered by a virus is unique, but investors should not forget that event-driven ‘shocks’ are almost always the genesis of a fall in the stock markets. Event-driven bear markets also tend to recover relatively quickly, as we saw with the 2002 SARS outbreak. And with emergency cuts in the UK and USA taking interest rates to an all-time low, the extremities of the ‘shock’ may be cushioned by a stable monetary environment.

So, what stocks should investors be looking to take a long position in once that the time is right? BP (LSE: BP) is currently at the top of my watch list. The BP share price is almost half of what is was 12 months ago. Yet BP is substantial enough to weather shocks and has proven its resilience many times before. At the time of writing, the oil price is falling fast. Between February and March 2020, the oil price fell from just shy of $55 a barrel to a little over $30 a barrel. The last time that oil prices were so low was during the 2014-2016 oil price plunge.

$20 oil At this moment in time, analysts predict that the current fall in oil prices will hasten when the world’s biggest crude oil consumer, the USA, starts to fully contend with the COVID-19 virus. OPEC has downgraded its estimate of oil demand growth to zero. Saudi Arabia and Russia have acrimoniously ended their Page | 2 Tej Kohli is a technologist and investor who is also the founder of the not-for-profit Tej Kohli Foundation. Tej Kohli regularly writes #TejTalks blogs on Medium about subjects including blindness, inequality, poverty, global health and technology transfer. Tej Kohli also blogs on Ghost and The Motley Fool about subjects including real estate, cryptocurrency, deep tech and stock market investing. Tej Kohli also shares his daily wisdom, commentary and insights on Twitter, LinkedIn and Facebook as @MrTejKohli. #TejTalks can be downloaded from Issuu.

agreement to prop up oil prices and have engaged in a new price war that the fragile geopolitical climate is unlikely to assuage.

My belief is that we will soon see something that we have not experienced for over two decades: the $20 oil barrel. And it is when the oil price hits $20 a barrel that I predict BP will reach the bottom of its bear run. The 2014-2016 oil price plunge has already cleared out a lot of the inefficiencies in the sector, which gives confidence in the ability of BP shares to resurge. Donald Trump has a tendency to surprise when it comes to striking deals, and he may succeed in bringing Moscow and Saudi Arabia back to the table too. And with record-low oil prices and interest rates, the economic conditions for a ‘BP bounce-back’ are good.

The proviso to this is that the world manages to curtail the COVID-19 crisis.

Whether this proviso is realistic is beyond my expertise. We certainly cannot trivialise a pandemic and the very real impact that it is having on individual lives.

But I take some comfort that in China, the rate of new infections seems to be plateauing, and from that we can be hopeful.

BP shares: buy, sell or hold?

For an investor looking for long-term growth my current recommendation is simple: wait until the oil price falls to $20 a barrel and be poised and ready to buy BP in the aftermath.

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

Page | 3 Tej Kohli is a technologist and investor who is also the founder of the not-for-profit Tej Kohli Foundation. Tej Kohli regularly writes #TejTalks blogs on Medium about subjects including blindness, inequality, poverty, global health and technology transfer. Tej Kohli also blogs on Ghost and The Motley Fool about subjects including real estate, cryptocurrency, deep tech and stock market investing. Tej Kohli also shares his daily wisdom, commentary and insights on Twitter, LinkedIn and Facebook as @MrTejKohli. #TejTalks can be downloaded from Issuu.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share from The Motley Fool. #TejTalks

Page | 4 Tej Kohli is a technologist and investor who is also the founder of the not-for-profit Tej Kohli Foundation. Tej Kohli regularly writes #TejTalks blogs on Medium about subjects including blindness, inequality, poverty, global health and technology transfer. Tej Kohli also blogs on Ghost and The Motley Fool about subjects including real estate, cryptocurrency, deep tech and stock market investing. Tej Kohli also shares his daily wisdom, commentary and insights on Twitter, LinkedIn and Facebook as @MrTejKohli. #TejTalks can be downloaded from Issuu.