We like to follow Warren Buffett’s oil stock picks, and this time we are taking a look at BP. BP has had a roller coaster ride over the past couple years, but are they back on top in Buffett’s eyes? Ilan Moscovitz digs a little deeper to see if its worth Buffett’s approval.
1. Earnings power
Buffett is famous for betting on a sure thing. For that reason, he likes to see companies with demonstrated earnings stability.
2. Return on equity and debt
Return on equity is a great metric for measuring both management’s effectiveness and the strength of a company’s competitive advantage or disadvantage — a classic Buffett consideration. When considering return on equity, it’s important to make sure a company doesn’t have an enormous debt burden, because that will skew your calculations and make the company look much more efficient than it is.
BP generates a fairly large return on equity — 25% over the past year, 17% on average over the past five years — while employing a limited debt-to-equity ratio of 39%.
CEO Robert Dudley has been at the job since October 2010. He’s held various other roles over the past few decades at BP and Amoco before BP acquired it.
Although there have been major technological advancements in exploration and production over recent years, the industry isn’t particularly susceptible to technological disruption.
Looks like there are mixed emotions when it comes to BP. They have their strengths and weaknesses like any stock. You just need to decide if the pros outweigh the cons. Its up to you! Continue your research to draw your own conclusions.
Quotes taken from report by Ilan Mascovitz, Read the entire article here.
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