May 27, 2010
The story of the oil spill in the Gulf of Mexico, and of the company at its heart, BP, has transfixed the nation for weeks. Major environmental, political, and financial issues swirl about the story like crude oil in salt water. I'll leave the environmental and political topics to others to debate: let's talk about the financial angle.
To date, BP (which at one time stood for "British Petroleum") has spent $750 million on containment efforts, and the world awaits the result of yesterday's "top kill" effort to cut off the flow. The estimated total cost could ultimately exceed $14 billion, according to the highest wild guess I could find. That's a lot of money, and nearly everyone from President Obama to Louisiana shrimpers to folks at my regular coffeeshop this morning all have nothing but bad things to say about BP.
What does it mean, financially? Let's start with this: On April 15th, a week before the explosion that touched off the spill, BP's total market value was $188 billion. As of last night's close, BP's market value was $132 billion. Investor distaste has sliced over $50 billion off. Let's talk about earnings - last year BP had profits of $14 billion and paid nearly that in cash dividends to shareholders. This is not a company that lacks for cash.
An investor (or potential investor) should consider this: In March of 2009 the stock market was the object of fear and loathing by nearly everyone. Today it is obvious that stocks were at their low and buying was the smart move. Today BP is distasteful to many. Fear, loathing, and distaste are emotions. Keep emotion out of your investing and stick to the facts and figures.
GTC
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).