Is BP p.l.c. (BP) a Good Undervalued UK Stock to Add to Your Portfolio?
We recently compiled a list of the 10 Best Undervalued UK Stocks To Buy Now. In this article, we are going to take a look at where BP p.l.c. (NYSE:BP) stands against the other undervalued UK stocks.
The Economy of the United Kingdom
According to a report by KPMG, the economy of the UK is going through a combination of consumption tailwinds and falling inflation which is expected to support modest positive growth in the country for the remainder of 2024 and in 2025. The United Kingdom’s economy is projected to achieve GDP growth of 0.5% in 2024, and 0.9% in 2025, while inflation is expected to hold steady at 2.6% in both 2024 and 2025. Unemployment rates are also projected to be 4.5% in 2024 and 4.9% in 2025. The interest rates are anticipated to drop towards 3% by the end of 2025 and elections are likely to resolve political uncertainty, which would encourage business. However, geopolitical uncertainty, conflicts, and trade tensions could lead to inflation spikes and sharp shifts in monetary policies. Despite the uncertainty, KPMG's analysts remain optimistic about the future. Yael Selfin Vice Chair and Chief Economist at KPMG United Kingdom said:
“Global economic prospects are better for 2025, with inflation expected to return towards target and central banks more confident to cut policy rates from the current restrictive levels. The silver lining is a tailwind for big-ticket consumer purchases and business investment. Merger and acquisition activity could also continue to gather steam, as financial conditions ease and dry powder is deployed. However, the uncertainty remains around the political shifts, which could see more insular and protectionist economic policies.”
Investors view the UK market as particularly appealing due to its current valuations, which are similar to those of emerging markets when measured on a forward price-to-earnings basis. The UK equity index stands out for its substantial exposure to the energy sector, which could benefit significantly if the global economy outperforms expectations. Additionally, in times of escalating geopolitical tensions, the energy sector might also see gains, driven by rising prices. The composition of the UK equity market is well-structured, especially in terms of dividend yields and volatility. Compared to European equities, UK stocks are less volatile and offer higher dividend yields, making them an attractive option for investors at this time. Goldman Sachs is also anticipating modest growth in the United Kingdom’s 2025 and 2026 economic growth and forecasts the FTSE 100 Index to rise to 7,900 by the end of 2024. Goldman Sachs said:
“Low valuation, improving global demand and low supply aiding commodities stocks, and continued buybacks all support FTSE 100. We do not expect UKX to underperform as it did in 2023,”
According to Emma Wall, Head of Investment Analysis at Hargreaves Lansdown, the UK offers one of the best value opportunities among developed markets, particularly for those looking for undervalued investments. Despite its high performance in the FTSE 100, it is highlighted as being on a 45% discount compared to the U.S. market. Emma Wall sees the best value opportunity in the UK, citing the significant discount, international revenues, lack of leverage, and expectations of high dividend payouts as key reasons for this analysis.
The UK market presents a unique and compelling opportunity for investors, as the global economy shows signs of improvement and inflation stabilizes, the UK will benefit from economic growth despite some uncertainties, with that in context let’s take a look at the 10 best undervalued UK stocks to buy now.
Our Methodology
For this article, we used the Finviz screener to screen for UK-based companies that are trading at a forward P/E ratio of under 20 as of August 9. We listed the stocks according to their hedge fund sentiment, which was taken from our database of 920 elite hedge funds as of Q1 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A large turbine generating power from natural gas, smoke rising in the background.
BP p.l.c. (NYSE:BP)
Number of Hedge Fund Investors: 40
Forward P/E ratio as of August 10: 7.94
BP p.l.c. (NYSE:BP) is a well-known energy company involved in the exploration, refining, marketing, supply, and production of oil and natural gas products. The company also generates solar energy and is one of the largest manufacturers of terephthalic acid which is used for making plastic bottles, food containers, and textiles. BP p.l.c. (NYSE:BP) holds a significant market presence across nine industries including Oil Drilling, Gas Extraction, Petroleum Refining, Lubricant Oil manufacturing, and Oil Pipeline Transportation. BP p.l.c. (NYSE:BP) has a diverse range of brands across various energy and chemical sectors. The primary BP brand is recognized for fuel and lubricants, while Aral serves as a major fuel and lubricant brand in Germany. Castrol is a leading name in automotive and industrial lubricants. In the aviation sector, Air BP supplies fuel and services. The company also operates a BP Chargemaster for electric vehicle charging.
BP p.l.c. (NYSE:BP) has positioned itself ahead of competitors in the shift to renewable energy and plans to reduce its oil and gas production by 25% by 2030 as part of its carbon emissions reduction plan. BP p.l.c. (NYSE:BP) is collaborating with companies all around the world in its journey towards net zero and is investing heavily in lower-carbon initiatives, in which investments have risen by approximately 3% in 2019 to 23% by 2023. BP p.l.c.’s (NYSE:BP) strategic focus on renewables has enhanced its ability to lead in the energy transition and capitalize on emerging market opportunities.
On July 10 BP p.l.c. (NYSE:BP) confirmed that it plans to acquire a 10% stake in the Ruwais liquefied natural gas (LNG) project led by Abu Dhabi National Oil Company (ADNOC) in Al Ruwais Industrial City, Abu Dhabi to develop competitive gas positions and expand its LNG portfolio. On July 15, BP p.l.c. (NYSE:BP) was also awarded funding jointly by the German Federal Ministry for Economic Affairs and Climate Action and the Lower Saxony Government for a 100MW industrial-scale green hydrogen project. The project is located adjacent to BP p.l.c.’s (NYSE:BP) Lingen Refinery in Germany and will be the company’s first fully owned and operated large-scale green hydrogen plant. The project aims to produce 10-11 kilotons of green hydrogen annually and will supply energy to its Lingen refinery as well as industrial customers in the region. BP p.l.c.’s (NYSE:BP) Head of Germany, Patrick Wendeler, while expressing gratitude for the government support said:
"Today’s announcement underscores bp’s commitment to Germany as we progress our ‘and, not or’ strategy. Our Lingen refinery has helped provide German industry with the energy it needs for more than 70 years. Decarbonising German industry is a significant challenge, and we are grateful to the German government for helping us – alongside the green hydrogen projects from the IPCEI Hy2Infra wave – to play a small but role in helping solve that challenge. With this funding, we’re a step further towards progressing our green hydrogen project in Lingen that would enable us to provide low carbon hydrogen to industrial customers and our Lingen refinery in the future."
BP p.l.c. (NYSE:BP) is one of the best undervalued UK stocks to buy now. The company operates in over 80 countries worldwide and is leading the energy transition in Europe. BP p.l.c. (NYSE:BP) is trading at a forward P/E ratio of 7.94 which is a 31.60% discount compared to the industry average of 11.68. Analysts have given the stock a Buy rating with an average price target of $42.73, which implies an upside of 22.25% from current levels. As of the first quarter, the stock is held by 40 hedge funds with stakes worth $2.07 billion. Fisher Asset Management is the largest stakeholder in the company and has a position worth $773 million, as of March 31.
Overall BP ranks 4th on our list of the best undervalued UK stocks to buy. You can visit 10 Best Undervalued UK Stocks To Buy Now to see the other undervalued UK stocks that are on hedge funds’ radar. While we acknowledge the potential of BP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.