Is BP a Sell?

July 13th, 2010 by hackel Leave a reply »

Take a look again at fair value table for BP. Given a 9% cost of equity (which is quite generous given remaining risk) BP is fairly valued in the upper $30s. So unless you feel another energy shock is on the way, or another event that is going to propel energy prices higher near-term, allowing for a major boost to free cash flow on similar output, I would advise investors sell their shares in BP for other investments offering greater value with lower risk (cost of capital).

Even if a halt to the spill forces share higher, its not worth the risk and would be unjustified given the estimated free cash flows. So, unless free cash flow improves dramatically, not a likely event near-term, investors will be better rewarded elsewhere.

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Disclosure: No positions

Kenneth S. Hackel, C.F.A.
President
CT Capital LLC

www.credittrends.com

BP has risk and should not wish to be considered by certain investors-consult your investment professional.

Investors and potential investors should not rely on any information contained herein or communicated by any means to replace consultations with qualified investment professionals to meet their individual investment needs.  The materials contained herein are for general purposes only.  They do not have regard to the specific investment objectives, financial situation or risk tolerance of individual or corporate investors.  Investors should consult with a financial professional prior to making any investment decision or investing in any of the firm’s products.  CT Capital LLC, its employees, or any associated individual, is not responsible for any investment decisions the recipient of these materials may make with respect to any investment.  Data contained herein is gathered from sources believed to be correct and reliable but assume no liability for the accuracy or validity of any material whether written or verbally communicated.  Nothing in this presentation should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or investment by CT Capital LLC, its directors, officers, principals, employees, agent, affiliates, or any third party.

No employees or clients of CT Capital LLC  or credittrends own a position in BP, nor was CT Capital or credittrends paid for preparing this report.

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