President-elect Joseph Biden’s objective of net-zero carbon status for the U.S. by 2050 might seem like a lose-lose situation for older energy companies. However, this could turn out to be a win-win for BP (NYSE:BP), and hesitant BP stock traders might find reasons to flip bullish.
Indeed, I’ll grant that a bullish argument can be made in favor of buying BP stock today. In the interest of fairness, I will reveal a prominent analyst’s upgrade for BP stock, as well as the company’s not-completely-horrendous quarterly fiscal results.
Still hovering close to multi-decade lows, BP stock presents a dilemma for value hunters. Is the stock a bona fide bargain, or a proverbial falling knife?
Only time will tell as there are many moving parts to this complex story. In the final analysis, we might find that a radical shift in BP’s business strategy is too strong a pill for traditional energy investors to swallow.
A Closer Look at BP Stock
Even the most ambitious optimists can’t deny that BP stock is in a prolonged bear market. In early November, traders can purchase shares at prices not seen since 1994.
We can play the blame game and point to depressed petroleum prices and the onset of the novel coronavirus. At some point, however, we have to admit that the price action in BP stock is profoundly discouraging.
Also unsettling is the fact that BP stock’s trailing 12-month earnings per share is -$6.42. That’s pretty awful for a stock that’s trading at around $15 or $16.
There is one bright spot that ought to be mentioned, however. BP stock offers a forward annual dividend yield of around 8%. Hence, at least the shareholders can collect some distributions along the way. Perhaps this could provide a buffer against future share-price losses.
Gallery: 9 Gold Stocks to Buy as Uncertainty Clouds the Election (InvestorPlace)
In a world turned upside down by the novel coronavirus, there’s a premium for stability. In part, this explains why the gold price is near the $2,000 level at time of writing. For those that prefer the convenience of tradable securities while offering exposure to precious metals, gold stocks may be an appropriate vehicle right now. Certainly, this sector benefits from the two traditional catalysts that bolster this safe-haven asset: fear and inflation. For one thing, we have the existential threat of the still-raging Covid-19 pandemic. According to data from the Centers for Disease Control and Prevention, on Nov. 5, new daily infections soared to nearly 118,000. For context, the summer surge in cases peaked at just under 75,000. Undoubtedly, the inability to get this outbreak under control was one of the reasons why the American electorate decided on a transition in power through President-elect Joe Biden. Second, the health crisis of the novel coronavirus has obviously spilled over into the economic realm. To be fair, the Trump administration has done an admirable job in helping to drive down national unemployment rates from their startling peak. However, the governmental response overall was found lacking. When Biden takes over, though, he must be careful to support a low-interest rate environment. Otherwise, he could risk collapsing the robust housing market, cratering economic sentiment. Of course, a low-interest rate environment is net positive for gold stocks. True, a Biden administration could theoretically become monetary policy hawk. But I just don’t see that happening because a fragile economic recovery needs support, not austerity. Societally as well, the country is fractured. Angered by the odd election night swings, many Trump supporters are crying foul, questioning the validity of the ballot-counting process. They’re not in any mood to concede, which raises the specter of social unrest. Therefore, I very much like these gold stocks to buy. Franco-Nevada (NYSE:FNV) Wheaton Precious Metals (NYSE:WPM) Sandstorm Gold (NYSE:SAND) Barrick Gold (NYSE:GOLD) Newmont Corporation (NYSE:NEM) Polyus (OTCMKTS:OPYGY) New Pacific Metals (OTCMKTS:NUPMF) White Gold (OTCMKTS:WHGOF) Northstar Gold (OTCMKTS:NSGCF) Finally, we should bear in mind that 2020 has been an unprecedented year on so many levels. Although it’s just my personal anecdote, a lingering notion exists that, like a classic slasher film, the start of this new decade isn’t quite done with us yet. In preparation, you’ll want to keep close tabs on these gold stocks to buy.
Gold Stocks to Buy: Franco-Nevada (FNV)
The leading gold-focused royalty and streaming company in the markets, Franco-Nevada has a distinct advantage over other gold stocks to buy. Through its royalty/streaming business model, Franco-Nevada provides balanced exposure to the gold exploration sector while mitigating much of the risk associated with it. As a result, if you’re squeamish about precious metal miners, FNV stock may give you the relative stability you’re seeking. Further, Franco-Nevada is delivering on the financial performance front. According to the company, its third-quarter earnings report saw record revenue, EBITDA, and net earnings as all mining assets returned to normal operations. Better yet, the company added 25 new royalties to its portfolio, bringing the total count of mining-related assets to 316. Finally, FNV stock has been on a tear since late October. Apparently, Wall Street was anticipating a Joe Biden victory and it might just get that. However, the uncertainty over what President Trump will do if he loses on “paper” bolsters the case for arguably most gold stocks.
Wheaton Precious Metals (WPM)
As a streaming specialist, Wheaton Precious Metals distinguishes itself from companies which feature a mix of streaming and royalty businesses. The most conspicuous difference is the ownership of the underlying physical assets. Royalties involve a share of revenue rights, while streaming involves an actual delivery of precious metals. What makes both similar is their end goal – these gold stocks provide superior cost predictability in an otherwise volatile market. Now, one of the knocks against investments like WPM stock is that they often end up mitigating upside during robust bull markets. Given so much uncertainty and tensions across the geopolitical spectrum, that wouldn’t be helpful for Wheaton Precious Metals. Nevertheless, shares have performed very well this year, gaining over 69% since the beginning of January. Further, the narrative for gold stocks is likely going to be a long one. For instance, the underlying spot market didn’t consistently move higher. By going with streaming investments like WPM stock, investors new to the arena can enjoy a relatively smoother ride.
Sandstorm Gold (SAND)
As one of the comparatively smaller names among royalty-based gold stocks, Sandstorm Gold may not be the first idea to pop up, especially during a period when conditions are not favorable for precious metals. However, in a tumultuous time like this, SAND stock has tremendous appeal. Still, with the company having a lower market capitalization than its bigger rivals, Sandstorm is riskier. Further, the added risk hasn’t quite panned out in SAND’s favor. For instance, SAND stock is up slightly over 10% on a year-to-date basis. That’s solid but not nearly as much profitability as the previous two gold stocks enjoyed. Yet this circumstance might also translate into opportunity in the making. Here’s my logic. With so much attention paid to newbie traders who have irrationally bid up some garbage names, they may eventually turn their attention toward the precious metals sector, specifically streaming/royalty firms for their balanced exposure. Combined with the lower price point for SAND shares, it’s very possible we could see a big boost heading into 2021.
Barrick Gold (GOLD)
One of the world’s biggest gold stocks, Barrick Gold, should be on everyone’s radar with so much tension packed into our election. But a company-specific reason to consider GOLD stock is that the Canadian mining firm brought home some compelling numbers for its Q3 earnings report. First, Barrick posted an adjusted profit of $726 million (41 cents a share), which represented an increase of 78% year-over-year. It also shattered the consensus estimate calling for 33 cents. Further, the bull market in gold led to free cash flow of $1.3 billion, a corporate record. You can thank rising gold prices for that metric. Overall, GOLD stock has put a lot of smiles on stakeholders’ faces, with shares up over 45% YTD. While speculators often don’t go for large-cap miners because of their limited upside, Barrick has gone against the grain. Frankly, you can expect this company to continue surprising Wall Street because the narrative for precious metals is only improving.
Newmont Corporation (NEM)
Similar to other gold stocks, Newmont Corporation delivered convincing numbers for its most recent earnings report. According to management, Newmont rang up Q3 adjusted EBITDA of $1.7 billion, which is a record. In addition, it enjoyed free cash flow of $1.3 billion and generated $1.6 billion of cash from continuing operations. Management emphatically stated that “This was the best quarterly financial performance in Newmont’s history.” Optically, it didn’t hurt that the second quarter was a rough one for the mining industry. Thus, the bounce-back is an encouraging signal for the sector. Clearly, investors felt the same way, bidding up NEM stock immediately following the earnings results. Although one of the safer plays among gold stocks, I believe Newmont is worthy of inclusion for any investor’s portfolio at this time. No matter what your political views are, we need to come together after such a divisive election cycle. But if we don’t get that unity – and we probably won’t – NEM stock stands to move much higher.
Polyus (OPYGY)
From my perspective, gold stocks should not only be insulated from political rumblings, they should benefit from the rising tensions. But what about mining firms based in Russia? Ideologically, the Trump administration is more favorable to the Russians and less so for the Chinese. With Biden, it’s generally the opposite. However, if you want to hedge your bets in case Trump pulls out a miracle, you may want to look at Polyus and OPYGY stock. Yes, this is a weird ticker name, even for over-the-counter stocks. Nevertheless, according to FT.com, Polyus is Russia’s largest gold miner by production. And if the company’s claim is accurate regarding its undeveloped Siberian deposit Sukhoi Log being the largest in the world, that would make Polyus the world’s second-largest gold miner by proven reserves. Frankly, with how ugly the 2020 electoral race has been, I can imagine ardent Trump supporters buying OPYGY stock as a middle finger to America’s elitist establishment. So, don’t be surprised to see some crazy sentiment for this Russian giant.
New Pacific Metals (NUPMF)
For the next three gold stocks, I’m going to focus on speculative companies. And please be aware that I’m not being coy with my language. These exploration companies are high-risk, high-reward ventures: you can make a killing, or you can get killed. Please gamble responsibly. First up is New Pacific Metals, which technically doesn’t belong in the gold stocks category. Instead, NUPMF stock is levered primarily to the silver market. Granted, the two metals are different. However, it’s fair to point out that gold and silver are often paired together. Fundamentally, what makes New Pacific Metals stand out is its Silver Sand project in Bolivia. Backed by Silvercorp Metals (NYSEAMERICAN:SVM) and Pan American Silver (NASDAQ:PAAS), NUPMF stock theoretically offers some downside protection relative to other highly risky silver and gold stocks. Further, Bolivia was the seventh-largest silver producing country in 2015, making the underlying market a viable one.
White Gold (WHGOF)
There aren’t many things better than gold unless of course it’s White Gold. Seriously, though, if you don’t mind the potential for severe volatility, you want to check out WHGOF stock. Earlier this summer, shares peaked at 95 cents. Currently, White Gold’s equity unit can be had for 70 cents each despite the underlying metal increasing in price due to fears of increasing social unrest. Moreover, the gold exploration specialist operates in the prolific White Gold District of Yukon, Canada. Featuring a claim of over 420,000 hectares, this represents over 40% of the district. According to White Gold’s website, indicated resources, which is an estimate of quantity, grade and mineral content with a reasonable level of confidence, amount to just under 1.14 million gold ounces. Of course, WHGOF stock is one of the small-capitalization gold stocks in the over-the-counter markets, which inherently makes it a colorful gamble, to say the least. But if you don’t mind living on the wild side, this could be for you.
Northstar Gold (NSGCF)
One of the reasons why true baseball fans admire future Hall of Famer lock in Ichiro Suzuki is because he was a strategist at the plate. While some fans take their love of the game to statistical absurdities, Ichiro was both a great athlete and a mathematician. Rarely if ever did he swing for the fences for the heck of it. But if you want to be the anti-Ichiro with your investment holdings, you may want to check out Northstar Gold. A micro-cap gold exploration company, NSGCF stock is pure speculation. Sure, the organization’s marketing pitch appears compelling, with the primary focus being the prolific Abitibi Greenstone Belt in Canada. Plus, Northstar has a management team that’s experienced in the global exploration market. But at the end of the day, you’re banking on whether the company can deliver the goods or not. Frankly, you just don’t know what you’ll find, which is why gold stocks levered purely to exploration are a dime a dozen. However, Northstar is intriguing because of its Miller Gold project, which could yield significant gold content thanks to the property’s similarity with other viable gold projects in the region. Still, don’t get too carried away. On the date of publication, Josh Enomoto is long gold and silver.A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
More From InvestorPlace
10/10 SLIDES
Not Completely Terrible
Overall, BP’s third-quarter fiscal results weren’t anything to write home about. Still, they weren’t entirely awful, either.
Load Error
The company reported adjusted earnings of 3 cents per share on a replacement cost basis, excluding non-operating items. That certainly beat the analyst community’s projection of a loss of 9 cents per share.
Yet, this result also indicates a steep decline from BP’s year-ago quarter earnings of 66 cents per share. So, it’s up to you to decide whether the glass is half-empty or half-full.
Moreover, BP’s total quarterly revenues of $44.202 billion were substantially below the $69.292 billion recorded during the year-ago quarter. The third-quarter revenues also fell short of Wall Street’s estimate of $60.017 billion.
On the flip side, we can congratulate the BP bulls for getting a prominent big-bank analyst on their side, sort of. Specifically, Morgan Stanley analysts upgraded BP stock from “underweight” to “equal-weight.” That’s not necessarily an effusive endorsement, but at least it’s a step in the right direction.
‘Biden’ Your Time
I’ve already shown you some red flags that might steer you away from BP stock. The most important reason to bide your time and await further developments, however, has to do with a radical change in BP’s business strategy.
BP, it seems, is pivoting away from the traditional fossil fuels business. Believe it or not, over the next 10 years, BP intends to reduce its oil production by 40%.
It’s a bold plan, to say the least. I suspect that some folks who’ve owned BP shares for years or decades aren’t necessarily pleased that the energy giant they bought a stake in will effectively be a completely different company.
BP CEO Bernard Looney has announced a plan involving investments of $5 billion per year in renewables. Will this costly plan pay off for BP and its shareholders? And, will Biden’s clean-energy initiatives get blockaded by a gridlocked Congress?
I don’t claim to know the answers, so I’m staying on the sidelines when it comes to BP stock. Declaring my ignorance is, as usual, the smartest thing I can do right now.
The Bottom Line
If ignorance is bliss, then I’m the most blissful financial writer around. With the future of the energy market unclear to me, I’m choosing to sit on the sidelines. Bolder BP stock traders, meanwhile, are free to take a position in the company’s costly bet on renewables, if they dare.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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