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.
CT Capital LLC

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

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