If you are looking for cheap UK shares to buy, I highly recommend taking a closer look at the BP (LSE: BP) share price.
In recent months, investor sentiment towards the company has deteriorated significantly. However, BP remains one of the world’s largest oil producers and hydrocarbon traders. I think this is unlikely to change anytime soon.
As such, now could be an excellent time to buy the BP share price while it trades at a low level as part of a diversified portfolio of cheap UK shares.
BP share price bargain
Thanks to the falling oil price and slumping demand for hydrocarbon products, BP is expected to make a significant loss this year.
Analysts expect this to change in 2021. They’ve pencilled in a recovery in earnings to $5.4bn for next year. These forecasts are based on the current oil price. They could change over the next 12-24 months.
Based on these projections, the BP share price is currently dealing at a forward price-to-earnings (P/E) ratio of 13.2. And even though the company has recently cut its dividend, it’s still projected to offer a yield of 8.2% for 2020 and 7% for 2021.
As cheap UK shares go, I think BP has the best recovery potential. The global economy will slow this year, but is expected to recover in 2021. This should push demand for oil and other hydrocarbon products higher next year, which should be good news for the BP share price. Not to mention the rest of the oil industry.
That said, the outlook for the global economy is highly uncertain at present. As such, BP’s recovery may take longer than expected. Nevertheless, over the medium- to long-term, I believe the company’s prospects are attractive. In the meantime, investors can pick up that high single-digit dividend yield.
One of the main reasons why investors have been selling the BP share price recently is its lack of green credentials. Management is trying to change this. It’s planning to spend billions over the next few years expanding the company’s renewable energy production. I think this is a sensible policy.
The world still needs oil and gas, but it’s transitioning away from these products. By striking a balance between oil and renewables, management can use the cash from hydrocarbon assets to invest in the future. I think this will help the company adapt to the changing world without taking on too much debt or overstretching itself.
Therefore, now could be an excellent time to buy the BP share price as part of a basket of cheap UK shares. The company’s outlook is uncertain in the near term, but it may make sense for long-term investors to make the most of this opportunity and buy one of the UK’s top blue-chips at a discount price.
The post Looking for cheap UK shares? Here’s why I’m looking at the BP share price appeared first on The Motley Fool UK.
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Rupert Hargreaves does not own any share 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