By Vic Lederman, editorial director, Chaikin Analytics
Folks, this may sound strange…
But BP (BP) seems to have just “remembered” that it’s an oil and gas company.
You see, back in 2020 the company announced it would cut its output by 40% by 2030. Yes… BP, the oil and gas giant, was planning a massive shift toward renewable energy.
That probably sounds like it doesn’t mesh with BP’s business. And that’s because it doesn’t.
Investors rightly feared that this was the end of BP’s profitability. Not surprisingly, the stock struggled last year. BP shares were roughly flat while the S&P 500 Index soared 24%.
This year has been bad, too. So far in 2024, BP is down about 6% compared with the S&P 500’s roughly 19% gain.
The company is trying to regain investor confidence. So now, it’s backpedaling.
With this in mind, let’s take a closer look at BP today through the lens of the Power Gauge…
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Keep in mind that roughly a year ago, BP lost the CEO who kicked off the company’s renewable-energy transition – Bernard Looney.
In September 2023, the company announced that Looney admitted he hadn’t been “fully transparent” regarding his “historical relationships with colleagues.”
After a large investigation, apologies, and PR damage control… Looney stepped down as CEO that month.
But even before that, it was becoming obvious that BP’s renewable-energy plan wasn’t working. In February last year, the company scaled back its output-reduction target to 25%.
And now, reports have emerged saying that current CEO Murray Auchincloss has all but killed the initiative. BP apparently won’t be cutting any production by 2030…
Instead, it will focus on profitability in its core oil and gas businesses.
BP is supposedly still targeting “net zero” emissions by 2050. But that date is far enough out that it will be the next CEO’s problem.
Now, take a look at BP’s Power Gauge chart over the past five years…
The first thing you’ll notice is that the stock came roaring out of its 2020 bottom. In late October that year, BP shares bottomed at $14.90.
The stock soared all the way to more than $41 per by the middle of February last year. That’s a roughly 175% gain in less than three years. And as you can see, the Power Gauge was mostly “bullish” on the stock during that majority of that period.
But now, BP’s chart is telling a different story…
The Power Gauge currently gives the stock a “neutral” rating. And as you can see, BP has struggled since coming off that high in February 2023.
If you look at the first panel below the chart, you’ll notice how clear this is with BP’s relative strength against the S&P 500. Since BP hit that high, its relative strength has been weak overall. It was obvious that the company’s stock had stumbled.
And BP is clearly struggling today. Worse still, the company is fighting against an industry-wide headwind. The Power Gauge says that BP’s industry group of oil, gas, and consumable fuels is weak right now.
So BP is regrouping. It’s making changes that, in theory, will make it more profitable.
Unfortunately, I don’t see that turning the stock around in the short term. BP reports earnings on October 29.
And the Power Gauge is clear… the company is still struggling to right itself. Meanwhile, the industry as a whole is also struggling.
But as I’ve mentioned in recent Chaikin PowerFeed essays, the pain in the energy sector won’t last forever. In fact, today’s woes are particularly bad.
So I would recommend keeping an eye on BP. If we can get a turnaround in oil prices, the company could see newfound investor confidence that sends share prices soaring.
After all, BP has finally “remembered” that it’s an oil and gas producer. And that’s the first step toward a more profitable future for the company.
Good investing,
Vic Lederman
Market View
Major Indexes and Notable Sectors
# HLD: BULLISH NEUTRAL BEARISH
Dow 30
-0.9%
8
19
3
S&P 500
-0.88%
146
282
66
Nasdaq
-1.07%
20
60
20
Small Caps
-0.75%
492
1033
396
Bonds
-0.75%
— According to the Chaikin Power Bar, Large Cap stocks and Small Cap stocks are Bullish. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Energy
+6.5%
Industrials
-0.19%
Financial
-0.51%
Communication
-0.82%
Information Technology
-0.86%
Materials
-1.55%
Utilities
-1.66%
Health Care
-1.98%
Discretionary
-2.68%
Staples
-2.82%
Real Estate
-3.29%
* * * *
Industry Focus
Health Care Equipment Services
4
32
27
Over the past 6 months, the Health Care Equipment subsector (XHE) has underperformed the S&P 500 by -7.95%. Its Power Bar ratio, which measures future potential, is Very Weak, with more Bearish than Bullish stocks. It is currently ranked #18 of 21 subsectors.
Indicative Stocks
NARI
Inari Medical, Inc.
PEN
Penumbra, Inc.
IART
Integra LifeSciences
* * * *
Top Movers
Gainers
SMCI
+15.79%
APD
+9.52%
GNRC
+8.52%
FANG
+2.51%
ALB
+2.33%
Losers
EG
-8.47%
ACGL
-6.16%
AIZ
-5.53%
VST
-5.16%
ALL
-4.89%
* * * *
Earnings Report
No earnings reporting today.
Earnings Surprises
No significant Earnings Surprises in the Russell 3000.
* * * *
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