BP’s share price is up 7% in the month but still looks great value with a P/E of 5.73 and a 5.67% yield!

I BP (LSE: BP) share price has been on a downward spiral but has recently been showing signs of health. It was up 7% last month, although that still leaves it down 13.9% on the year.

I am pleased with its slight improvement, because I bought BP shares on 18th September at 411p and averaged down to 392p on 22nd November. I’m still underwater at today’s (15 December) price of 395.75p but about 3%.

This oil magnate is starting to recover

I don’t have money to invest, but if I did, BP would be at the top of my shopping list. However, I still think BP could have a tough 2025.

Anyone who liked the buzz about ‘big oil’ – the suggestion that at some point we will run out of accessible oil – has learned to be wary of predicting energy price movements. The shale revolution killed that idea.

Lately, all the talk has been about ‘peak demand’, as renewables give oil and gas a run for their money.

On December 3, the Bank of America Oil is forecast to reach around $65 a barrel by 2025, amid a glut of crude and shrinking demand as countries shift to cleaner energy and transportation.

However on 12 December, the International Energy Agency raised its forecast for global oil demand growth for 2025 from November’s 990,000 barrels a day to 1.1m, citing “the impact of China’s recent stimulus measures”.

Markets are predicting all sorts of things about US President-elect Donald Trump’s impact on oil prices, but I’ll stop there. That’s how madness lies. No one can predict the movement of the stock market, just like no one can predict the price of oil.

This is a cyclical stock and events will turn around

So I’ll go back to the basics, and here they are. First, commodity stocks are a popular trade with a surprisingly low earnings yield of 5.73. BP appears to be closer to the bottom of the cycle than the top. On that balance, the shares look too cheap to ignore if I have the money.

Second, the way to combat short-term price volatility is to buy stocks with a long-term perspective. I don’t know if my BP shares will break even in 2025, 2026 or when. However, I believe that in the long run the world still needs oil and if it doesn’t, BP will adapt to the change of energy.

Third and finally, higher yields help compensate for short-term volatility. As BP shares floundered, the yield rose to 5.76%. That’s more comfortable than FTSE 100 average 3.58%. I will reinvest every penny while I wait for my BP shares to go up.

I may be wrong. The race for renewables could destroy the need for oil sooner than we think. Oil company stocks remain just one risk away from a meltdown. A deadly explosion on BP’s Deepwater Horizon drilling platform in the Gulf of Mexico in 2010 sent BP shares down for a decade.

It may be risky but the potential rewards are great. I could buy more at today’s price but sadly, I don’t have the money right now.