Events Trader #56: It's time to buy back into BP!

25th May 2010

It's time to buy back into BP!

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The markets are in freefall. And suddenly investors are being panicked by problems from every corner of the globe.

Spanish banks are being bailed out. The Thai government is struggling to quell a bloody rebellion. And Kim Jong Il is doing his best to upset his neighbours to the south.

I have good news though this is not the end of the world.

Very soon now, investors are going to realise that the Greek debt crisis can be contained (for a while). And Kim Jong Il is just a drug-crazed pyschopath who likes a little attention.

In fact, I think this savage sell-off will prove a great entry point for going long on the FTSE. I'll let you now exactly when in a coming Events Trader.

But today I want to talk about another trade that investors are completely losing their head over - BP. Three weeks ago we got in too early on this stock. But I can't believe the drop we've seen since then.

If you haven't done so already, now is the time to buy into BP. Because I think we'll see a 27% gain from here.

How you could make a snap 27% gain on BP

In the three weeks since I recommended buying BP at 572p, we've seen the stock fall 15% - triggering our stop loss at 500p. In that time, millions of gallons of oil have leaked into the Gulf of Mexico. And recrimination against the group has only intensified.

But the facts haven't changed. BP are not the main culprits for this crisis. The platform was leased and operated from Transocean [RIG US] and the safety valve that failed on top of the oil well was designed and placed in situ by Halliburton [HAL US].

The cost of this crisis is also been completely blown out of perspective. According to a report issued today by UBS, the cost of the cleanup operation is put at $12bn but $21.3bn has already been wiped off its market capitalisation since the Deepwater Horizon went up in flames.

BP is not going to go bust! Even if the US imposes a massive fine, it will not go bust. This is a massive group that is now trading 6.3 times earnings and offers a dividend yield of 8.8% to boot.

That's why I'm recommending that you buy in at 485p. I maintain my target at 615p. Because I think this is a great opportunity to trade what is a hysterical reaction to BP's role in this crisis.

Before I go this week, just to note that our stop loss on Nokia also got triggered in the mass sell off in the markets. My apologies to those who suffered a loss here. Unfortunately, here is another great trade that got caught up in this rout.

Overall we were quite light in open positions heading into the recent turmoil. But I think that this volatility is going to provide a heap of great trading opportunities for us. In this kind of environment, you only have to get one right and you can almost forget about what the markets do for the rest of the year and just go on holiday.

I will be back with more updates and trading ideas next week. If you want to contact me you can contact me at my e-mail eventstrader@moneyweek.com

Riccardo Marzi

Events Trader

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Spread betting is not suitable for everyone - ensure you fully understand the risks involved and never risk more than you can afford to lose. Prices can move rapidly against you and resulting losses may be more than your original stake or deposit.

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