Why I think BP stocks have skyrocketed by more than 60%

Since October 28th last year BP (LSE: BP) Stocks surged about 60%, making the oil giant one of the best performing FTSE 100 Inventory for that period.

The 60% surge gave shareholders more hope for the future. With the stock price rising significantly, the company now has more resources in terms of stock price to move to green energy.

Given the rally, here’s why BP shares rose and what’s ahead for the company in the long run.

Potential Reasons for BP Stocks Soaring

I think the main reason for the surge in BP stocks is simple. Oil prices have risen sharply as the market expects strong global economic growth in the near future. Investors are optimistic that the Covid-19 vaccine deployment and government stimulus may become more normal at some point.

As an oil company, BP benefits from rising oil prices.How much positive profits a positive change in Brent prices will bring to BP, the company’s business environment Rule of thumb Gives some clues. For the full year of 2020, for every $ 1 increase in oil prices upstream of Brent, operating profit on pre-tax replacement costs will increase by $ 340 million.

Given that Brent’s price rose about $ 10 per barrel from the Q3 2020 average, BP’s annual run-of-thumb pre-tax replacement expense operating profit could exceed $ 3 billion (. As a rule of thumb, compared to the third quarter)). That’s a pretty big number, given that the UK supermajor has a market capitalization of only $ 85 billion, no matter how sliced ​​it is, including taxes.

In addition to the potential increase in operating income for pre-tax replacement costs, the rise in Brent prices also has other additional benefits. According to third-quarter records, the company is in the middle of its $ 25 billion sale program by 2025. This allows management to still sell nearly billions of assets. If the price of oil is high, management can raise the price of the asset. If a company gets a higher price for an asset, it may be able to maintain more value.

Green transition

In the long run, I think how successful BP stocks will depend on how the company is doing in it. Green transition.. I believe BP will succeed, partly because it is a major oil and gas company.

BP has many existing relationships with Fortune 500 companies. Many of these companies may be willing to trust BP for their renewable energy needs as well, as these large companies trust BP for much of their energy demand. As a result, I think BP could think that it would be easier to expand renewable energy than a green-only challenger. It’s easy to sell.

Stocks have already risen 60% from last year’s lows, but I still buy and hold stocks in the long run. The company has successfully transitioned to the green, and I think the recent rise in oil prices will help BP facilitate the transition to the green.

Jay Yao does not have a position in any of the shares mentioned. The Motley Fool UK does not have a position in any of the listed shares. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by considering different insights, Better investors than us.