Investing for the long term requires identifying global growth trends. Major oil companies such as BP (NYSE: BP) are in position to profit from the increasing need for energy around the world. According to a report by the US Energy Information Administration, the global demand for energy will rise by over 55% by 2040.
The great majority of that increasing demand will be in emerging market nations such as China, India, Brazil, Russia and others. Operating in more than 80 countries, BP oil stock is in position to profit from that demand. As a result, so will its shareholders.
The Energy Sector as a Whole
While the energy sector is growing, some companies are abandoning emerging markets in favor of the growing North American oil and gas market. This change by companies such as Occidental Petroleum (NYSE: OXY) and Royal Dutch Shell (NYSE: RDS-A) will be detrimental in the long run for their shareholders.
Most of the economic growth for the world will be in emerging markets, overall. That has been recognized in deed by other firms. For example, Ford Motor Co. (NYSE: F) just announced plans to grow its market share in The Middle East and Africa. Those cars and trucks will need fuel, resulting in more customers for BP and the others who remain in the area.
BP Oil Stock Has Enjoyed Positive News
BP has been rallying lately as a result of good news regarding its legal problems from the oil spill in the Gulf of Mexico. As a result, the share price is up more than 7% for the last week of market action. For 2013, BP is up more than 17%. Ordinarily, that would be a stellar performance. But Big Oil has been trailing the overall market due to a decline in demand.
That results is that BP trading at an appealing discount.
BP's Financials Look Appealing as Well
At present, the price-to-sales ratio is 0.38. That means that each dollar of sales for BP is going at more than a 60% discount in the stock price. As earnings per share are increasing for BP, that is very attractive for long term investors.
What is also alluring for investors is the dividend yield of BP.
The average dividend for a member of the Standard & Poor’s 500 Index is around 1.9%. For BP, the dividend yield is 4.90%. BP has a low payout ratio of only 25.90%. That leaves plenty of cash to increase the dividend or fund buyback programs to reward shareholders.
BP is trading at a discount to its peer in the oil industry.
Now trading around $47 a share, the mean analyst target price for BP over the next year of market action is $49.51. Eventually, the stock price will rise so that it is at the same valuations as the others in its sector. For shareholders willing to wait, BP should prove to be a profitable investment over the long term, especially with increasing demand from emerging market countries where it is strong. Combined with the dividend yield, the total return from BP should go a long way to paying off student loans, helping to buy a house, and financing an enjoyable retirement.
Do you own any BP oil stock? Do you wish you had bought after the BP oil spill?