Buying low never feels good…
Everyone around you is selling, news is negative, and panic is rampant.
It is at this moment that experience counts.
At this point, novice investors often make their worst mistake—selling at absolute lows.
On the other hand, those of us who’ve been in the game for some time know that it is precisely when all hope seems lost, that we should be buying stocks… despite our emotions telling us otherwise.
When coronavirus first broke, I argued that the stock market’s reaction to this event wasn’t yet dramatic enough, and I warned you not to buy the initial dip.
Throughout February, I remained hesitant to buy into the market that was making new all-time highs and shrugging of the risks. I was positive that a significant correction would occur.
My price target for the S&P 500 was 3,050, and I promised myself that, should the index cross 3,100, I was going to begin buying the dip.
Yesterday, my wish came true. The market opened at 3,063 and fell to 2,979 by the close of the day.
Which means it’s time to go on a shopping spree.
Here’s one stock trading at an irresistible discount, and I believe it’s only a matter of days before it shoots back up.
Time To Invest In The Most Depressed Sector On The Market
I’m probably going to surprise you with my choice. This has been one of the most avoided blue chips of the last year.
I’m speaking about the oil giant BP (NYSE: BP).
Since the start of the year, this stock has declined by 15%.
Usually, that would worry me, but in BP’s case, it looks like this is the bottom.
Every time in the last 20 years that this oil giant has approached $30 per share, it has quickly bounced back.
In January 2003, it hit $34. Then it rebounded and the price doubled over the next two years.
In February 2009, it touched $34 again… then went on to double in value again in less than a year.
This pattern repeated itself in 2010 after the Deepwater Horizon oil spill and in January 2016 at the height of the oil oversupply crisis when the price of oil briefly dropped below $30 a barrel.
Now BP is trading at $31.53, near 20-year lows, making this an excellent entry point for both long- and short-term investors.
Dividend Yields Like This Are Hard To Come By
Best of all, this latest plunge in price means the company is offering impressive dividend yield of 7.99%. That’s hard to pass up.
Typically, red lights start going off in my head when I hear about a dividend yield that substantial. In most cases, the reason for it is poor business prospects, which increases the chances of management cutting the high payouts.
But in the case of BP, I’m confident they can continue making these payments.
Despite the low-oil-price environment, the British oil & gas producer has continued to increase dividends all throughout the last decade. Indeed, it never missed a dividend payment.
This shows me they’re capable of keeping their operations afloat even in harsh economic conditions.
Furthermore, compared with other oil majors, BP can cover its dividends at a much lower oil price—$40 a barrel. Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM), for example, need $55 and $87 per barrel, respectively, making their payouts more questionable.
Ambitious Plans For The Future
Finally, I’m intrigued by BP’s recent announcement to turn carbon neutral by 2050.
A move like that from an old company like BP, established in a rigid industry such as oil & gas and breaking out as the first among its peers to do so, gets my attention. It signals to me that management has ambitious plans and is not afraid to follow them through. I expect other oil majors will follow suit.
Taken altogether, these indicators add up to make BP at $31.53 a buy.
Besides, this is what market crises are for—buying quality stocks at rock-bottom prices.
Good investing,
Leon Wilfan
