With shares of BP plc (NYSE:BP) trading at around $41.00, is BP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

When you think of BP, what’s the first thing that comes to mind? If it’s not a local gas station, then it’s likely the explosion of the Deepwater Horizon Rig in the Gulf of Mexico back in 2010. This was a terrible event in many ways, and if you don’t want to invest in a company that has a lot of environmental damage, then there would be no point in reading on from here…and your position is understandable. However, if you’re looking at this strictly from an investing standpoint, then this tragic event may have presented an opportunity. Yes, it was a few years ago, but is the stock still undervalued because of the explosion? Possibly. After all, it was a major setback with an estimated cost of $42 billion. Let’s take a closer look at the current situation for BP.

There is some good news. Dividends have helped cover sub-par stock performance over the past few years, there should be an EPS improvement this year, and operating cash flow is expected to jump to $30 billion (from $20.4 billion) in 2014. The bad news is that finding low-cost barrels of oil is becoming increasingly difficult, especially with the government getting in the way.

Though there are challenges going forward, that’s the case for any company in any industry. There are many reasons to think that BP will be at least a decent investment over the long haul. However, that doesn’t necessarily mean it’s the best investment in the space. Let’s take a look at BP compared to Chevron Corporation (NYSE:CVX) and ConocoPhillips (NYSE:COP). Prior to viewing these numbers and making comparisons, please keep in mind that these companies are different sizes. BP has a market cap of $130.08 billion, Chevron has a market cap of $232.52 billion, and ConocoPhillips has a market cap of $72.48 billion.

If you’re like most readers, then you love charts. Below is the first of several charts in this article.


E = Equity to Debt Ratio Is Normal   

The debt-to-equity ratio for BP is close to the industry average of 0.30.


T = Technicals on the Stock Chart Are Weak   

BP has underperformed Chevron and ConocoPhillips for every time frame listed in the chart below. It has also underperformed the S&P 500 over these time frames.


At $41.00, BP is trading below all its averages.

50-Day   SMA


100-Day   SMA


200-Day   SMA



E = Earnings Have Been Inconsistent             

Earnings have been all over the map the past several years. Revenue has consistently improved since 2010, but the pace has slowed.


When we look at the last quarter on a year-over-year basis, we see an increase in revenue and a decline in earnings.


T = Trends Support the Industry

Renewable energy excitement has proven to be just that — excitement. The companies in this industry have a long way to go before producing results like big oil and gas companies. Big oil still rules, and that’s likely to be the case for a very long time. The one major threat is a deflationary environment. This doesn’t look likely at the moment, but it’s more of a threat than at most points throughout our history considering there might be some serious deleveraging around the corner.


Despite recent struggles, BP is still a shareholder-friendly company with a strong track record throughout its history. You already know the details, and BP looks undervalued here. However, Chevron and ConocoPhillips have both outperformed BP through the years, and Chevron has been the most impressive of them all. Chevron is also the safest investment with the most growth potential going forward.

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