Thursday, June 3, 2010

BP Disaster provides opportunity for investors

British Petroleum PLC [BP.LSE] is a company in a fair amount of trouble at the moment. Apart from the fact that its oil well in the Gulf of Mexico is leaking the black stuff into the ocean and causing an environmental disaster of monumental proportions and it could get alot worse, the financial implications for the business could be just as catastrophic for the company and shareholders.

There are billions to be spent on clean-ups and further billions on compensation and legal cases for years to come and markets just hate uncertainty.

So far almost 40% of capitalisation has been lost from the value of BP over the last 4 weeks.

All this bad news of course presents a great opportunity to buy this otherwise top asset for much less than it is worth.

As I pointed out it will cost the company (and insurers) many billions to put this right and so it should but it shouldn't be forgotten by prospective investors that this company made US$6 billion of profit on nearly $9 billion in revenue in the last quarter alone so it can afford to take quite a big hit without it affecting the company badly in the long-term.



The value in BP now lies for smaller investors in not only the cheaper shares but also the distinct possibility that the company is now under threat of a takeover offer because it will be seen by possible suitors as a relative bargain.

While many possible risks remain for investors in BP, the market reaction seems a little like overkill to me and its shares are cheap. The longer the disaster in the Gulf continues on for the further BP shares could fall and present an even bigger opportunity. Just how further the shares will fall is anyone's guess but it seems clear that they will.

Fortune favours the brave.

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From Amazon

The History of the British Petroleum Company (History of British  Petroleum) (Volume 2)
The History of the British Petroleum Company (History of British Petroleum) (Volume 2) by J. H. Bamberg
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Don't Go Near The Water: British Petroleum and Alaska Worker's  Compensation Division Practices Exposed
Don't Go Near The Water: British Petroleum and Alaska Worker's Compensation Division Practices Exposed by Mervyn Eggleston
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