At Wednesday’s market close, the FTSE 100 closed largely unchanged at around 5,946 points. Thus, in the three months since 7 July, the Footsie has fallen modestly, losing around 210 points (3.4%).
The dogs of the FTSE 100 since the summer
Although the FTSE 100 is down since early July, 55 of the shares in the index have actually risen over the past three months. Gains for these shares range from a tiny 0.2% rise to an impressive 38% leap for the top performer.
At the other end of the scale, shares in 45 FTSE 100 members have crashed spectacularly over the past three months. Falls for these stocks range from a 0.5% blip all the way down to a 47.9% crash.
The #1 dog of the FTSE 100 since the summer is troubled aero-engine maker Rolls-Royce. Dog #2 is International Consolidated Airlines Group, whose shares have plunged 30.3% in three months. With airline miles flown down by roughly four-fifths from their peak, both Rolls and IAG are fighting for survival.
BP is the #3 dog of the FTSE 100
Propping up third place in the list of FTSE 100 dogs is oil & gas super-major BP (LSE: BP.). Our once-mighty national energy champion, formerly British Petroleum, has been knocked off its feet in 2020. But is it on its knees and about to hit the canvas, or will it rise again to fight another day?
On Wednesday, BP’s share price closed at 215.85p, down 4.5p (2%) on the day. This is a mere 2.4% above the FTSE 100 firm’s 52-week low of 210.8p, set on 2 October.
BP’s two biggest problems are self-explanatory. A 10% drop in global oil demand due to Covid-19, plus an almost-30% plunge in the price of oil in 2020 have destroyed its profitability. As a result, this FTSE 100 giant’s shares – which closed at 521.5p on 2 October 2019 – have crashed a whopping 57% in 12 months.
I believe BP means ‘bargain price’
Today, with its share price having more than halved, BP’s market value has declined to £45bn. Just over two years ago, on 28 September 2018, it was worth close to £120bn. In other words, shareholders in this FTSE 100 fallen angel have lost perhaps £75bn in less than 25 months. Wow.
For sure, BP’s share price is in the gutter and, in fact, has collapsed to 25-year lows. But this is history and only a problem for existing shareholders. Right now, I believe that this FTSE 100 firm is far from dead and buried.
In order to cut its costs to fund the transition towards low-carbon energy production, BP has taken an axe to its expenses. Earlier this year, it halved its regular dividend and committed to lop $3bn from capital spending. The index heavyweight has also announced up to 10,000 job cuts and issued new debt to bolster its balance sheet. All of these actions will make BP a stronger business in future, I feel.
To sum up, it’s been a gruesome 2020 for existing BP shareholders. But, rather than sell up, I’d be a buyer of this particular share at today’s price. Indeed, I’d buy big and hold BP shares for the long term, so as to bank hefty cash dividends and capital gains over the coming decades!
The post This FTSE 100 share has dived 27% in three months. What would I do with it? appeared first on The Motley Fool UK.
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020