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BP (LSE: BP.) shares have performed poorly in the past five years, gaining less than 2%. And we can’t just blame weak market sentiment towards big oil for that. Rival Shell‘s up 40% over the same time.
Oil company shares are typically volatile and at the mercy of the oil price. So we need extra caution when looking at shorter-term price movements. But the comparison with Shell is telling, and something has clearly been going wrong at BP.
It looks like things might be changing. And the BP share price has risen 18% just since the start of 2025. That’s more than twice Shell’s progress. It means a £10,000 investment in BP shares at New Year is already worth £11,800. Can we look forward to more of that?
The 2025 boost has come very recently, spurred by evidence from different directions that BP is set to rethink its goals.
The ‘net zero’ thing announced back in 2020 with plans to move towards a carbon-neutral future shook the market. And since then, the problem I see is that BP’s repeatedly failed to give us much in the way of concrete plans. How will it achieve its aims? How will it keep profits coming in and dividends going out? Those questions haven’t been convincingly answered.
In early February, news broke that US hedge fund Elliott Investment Management is building up a stake in BP. Various sources suggest the activist investor is getting close to 5%. And it’s surely unlikely to do that without wanting to shake up the way BP does business.
In fact, the same sources suggest Elliott’s already in talks with BP ahead of its Capital Markets Day, scheduled for 26 February. What I want to see from that is a clearer way forward rather than the vague hand-waving we’ve had too much of.
Strategy reset
With 2024 full-year results on 11 February, CEO Murray Auchincloss said: “Building on the actions taken in the last 12 months, we now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns.”
In other times the idea of an oil producer needing a strategy reset might seem bizarre. Erm, drill for oil, sell it… what else is there? But even if BP goes back to tradition, it will still need to deal with the long-term move away from fossil fuels.
The growing urge to keep drilling and pumping could drive oil prices and profit margins down. Then we have these peace talks aimed at ending the war in Ukraine. Could that pave the way for Russian oil to flow back onto world markets?
There are good reasons to be wary of investing in oil stocks. But with a low forward price-to-earnings (P/E) multiple of under 10, a dividend yield of 5.3%, and an activist investor pushing for strategy change, BP’s the oil stock to consider for me right now.
