Thursday, June 3, 2010

Why I might buy British Petroleum (BP) stock

Slowly the market is coming back, rising over 200 points yesterday. I'm still down, but having some really good days. I'm looking at British Petroleum (BP), yes the company responsible for the biggest oil spill in history. Why? Because it is getting hammered. This is where personal choice comes to play.

About 20 years ago, several financial companies started marketing mutual funds that excluded "sin" type companies like tobacco, gambling and alcohol. The goal was to attract people who had aversions to the kinds of products and services these companies sold and, therefore, would choose not to invest in them. Very valid point. If you don't agree with what a company does, you are well within your right not to invest in that company. My problem/issue with that type of investment mix is that 1) investing is about, for the most part, getting the best return, not expressing your distaste for drinking, smoking or any other questionable yet legal activities, 2) these portfolios have been put together not becauase someone did research and decided they were a good mix from an investment perspective, they were put together because they are a good mix from a marketing perspective (I don't invest in marketing) and 3) I don't care for mutual funds, see previous posts.

Getting back to my point about British Petroleum, I think they have handled this whole spill horribly, starting with before the spill. They had no plan for cleaning up a mess of this magnitude, yet they've probably thrown millions into figuring out how to drill 5 miles below the surface of the ocean. Having said all that, they are still in business. Their stock has lost about 50% of it's value in the last month, and over the last 10-15 years they have made a boatload of money. Assuming they don't get liquidated due to lawsuits (see Arthur Anderson) or taken over by a competitor, they will be back. Why? Because as George Bush said, "We are addicted to oil." and that addiction ain't going nowhere no time soon. So, yes, it's a gamble, but I can see this working out for BP such that in a year or so the stock price is right back where it was a month ago. A 100% return in 12 months ain't bad at all.
Do I feel bad about investing in a company that royally screwed up the GULF OF MEXICO for decades? Nope. If you want to get picky, go protest the people you see lined up at BP gas stations. They're the ones supporting the company, I'm just gambling.

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