Will You Prosper From Disaster?
- Terrible calamity
- When will you buy BP?
- Potential gains of 800%
The spill in the Gulf Coast near Louisiana is nothing short of a tragedy. And for certain, it’s a man-made phenomenon. There’s really no telling how bad this leak will be. There’s concern that it will severely damage fisheries along the Louisiana coast. It’s already disrupted shipping in the area. And there’s no doubt, it’s not a good thing.
Some analysts estimate this leak will cost BP (NYSE: BP) upwards of $3 billion in cleanup costs alone. BP owns the drilling rig that exploded and caused the leak. That’s baked into the cake – BP stock fell nearly 10% last week and another few percent today.
President Obama was quick to blame BP. They deserve the blame, but I think it’s a bit disingenuous of the President to angrily point his finger. On March 30th, less than a month before this leak, President Obama announced his desire to allow additional offshore oil and natural gas exploration and drilling in the Gulf of Mexico.
It’s upsetting to think about the destruction of the Gulf’s natural beauty, as well as the loss of livelihood for thousands of fishermen and other Americans who depend on a healthy ocean for their paycheck. But at the same time, this type of calamity shouldn’t surprise us. The reality of offshore oil drilling is that sometimes there is going to be oil spillage. That is an unfortunate consequence that we have to deal with as a society. I’m frankly surprised that we haven’t had more disasters from this type of deepwater rig in the past.
I hate to search for profitable investment opportunities from this disaster – but that’s my job. And, as part of my job, it’s vital for me to point out that oil companies, especially offshore deepwater oil companies, are extremely unpopular right now.
That’s exactly when we should be buying. And I realize it feels icky to buy BP right now. I hesitate to tell anyone to do so, just because the stock is currently selling off even more. We dumped BP from the Energy World Profits portfolio last week to lock in a 10% gain – but it’s clear that this company will be a screaming buy in the future. The company is already approaching its 52-week lows, and for good reason, but let’s not lose our heads.
BP is one of the biggest oil companies on the planet. They have a market cap of over $150 billion, and had annual gross profits of $63 billion last year. A $3 billion cleanup bill will certainly sting this company, and I fully expect that number to balloon.
Not to compare the 1989 Exxon (NYSE: XOM) Valdez disaster to the current Louisiana tragedy – but in terms of creating a buy opportunity, I think it’s a fair comparison.
Investors who bought Exxon one month after the Valdez tanker ran aground have seen their shares appreciate nearly 800% in the ensuing 21 years. That’s the kind of gain you can only get by buying when something is cheap and hated.
Right now there’s no question that BP is hated. Our popular President is leading the charge against BP. President Obama has since changed his mind about Gulf drilling, and has shut down all new exploration and drilling in the Gulf. Despite how you feel about oil companies, and BP in particular, it’s hard to imagine a scenario where oil prices will fall given the current climate.
My point is: BP isn’t going anywhere. They’ll likely get sued, possibly for billions of dollars. They’re on the hook for at least $3 billion in clean up costs. But they have so much income from so many other locations outside of the Gulf of Mexico, and they’re sitting on over $10 billion in cash, that there’s a stellar buying opportunity in the near future for BP.
If BP stock approaches 2009 lows of $35 a share, I think it would be foolish not to buy. Maybe it’s icky, but there’s nothing icky about potential 800% gains.
We’ll look for buying opportunities over the coming weeks.
Good investing,
Kevin McElroy
Editor
Resource Prospector
