Will BP Continue to Trade Near Highs for the Year?

With shares of BP (NYSE:BP) trading around $45, is BP an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

BP is an integrated oil and gas company. The firm provides its customers with fuel for transportation, energy for heat and light, lubricants, and the petrochemicals products used to make items like paints, clothes, and packaging. It operates in two business segments: exploration and production, and refining and marketing. BP provides energy products to consumers and companies worldwide. Without the oil and gas products provided, many consumers and businesses would not be able to operate on a daily basis.

BP had some good news for shareholders in its third quarter earnings report. Underlying replacement profit came in ahead of estimates despite dropping from $5 billion a year ago to $3.7 billion. BP also promised to sell off $10 billion in assets over the next two years and return the proceeds to shareholders, and the company’s dividend was up 5.6 percent to 9.5 cents a share. But the Deepwater Horizon oil spill was still looming over BP, which raised the total cost of the spill from $42.4 to $42.5 billion.

T = Technicals on the Stock Chart Are Strong

BP stock has not made significant progress in recent years. The stock is currently trading near highs for the year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, BP is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

BP

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of BP options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

BP Options

16.25%

0%

0%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

November Options

Flat

Average

December Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on BP’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for BP look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

N/A

233.67%

192.30%

-78.97%

Revenue Growth (Y-O-Y)

-50.71%

-0.74%

10.06%

7.51%

Earnings Reaction

4.99%*

-3.20%

2.28%

1.35%

BP has seen increasing earnings and  mixed revenue figures over the last four quarters. From these numbers, the markets have mostly been pleased with BP’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has BP stock done relative to its peers,Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDSA), and sector?

BP

Chevron

Exxon Mobil

Royal Dutch Shell

Sector

Year-to-Date Return

9.26%

12.28%

2.35%

1.07%

7.24%

BP has been a relative performance leader, year-to-date.

Conclusion

BP is an oil and gas company that supplies energy products and services worldwide. The company had good news for shareholders in its third quarter earnings report with profit coming in ahead of estimates. The stock has not made significant progress in recent years however, it’s currently trading near highs for the year. Over the last four quarters, earnings have been rising while revenues have been mixed, which has left investors mostly pleased about recent earnings announcements. Relative to its weak peers and sector, BP has been a relative year-to-date performer. Look for BP to OUTPERFORM.

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