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BP’s (LSE: BP.) share price is surging at the moment. Fuelled by the spike in oil prices, it’s jumped from 460p to 546p over the last month (a gain of about 19%).
One broker believes the share price can climb much higher though. It reckons shares in the oil major are capable of returning more than 20% over the next 12 months or so.
The upward trend could have room to run
The broker I’m talking about is Barclays. Earlier this morning (17 March), it lifted its price target for BP shares from 590p to 650p.
That new price target is about 19% above the current share price. If it was to come to fruition, investors could be looking at total returns of about 24% over the next year once dividend payments are factored in as the yield on BP shares is almost 5%.
It’s easy to see why Barclays’ analysts are bullish here. Recently, the price of Brent crude oil surged above $100 per barrel after starting the year near $60 (and it’s looking like oil prices could remain elevated for a while).
This is a major positive for BP. With production costs of somewhere around $40 per barrel, it’s going to be minting money if oil prices remain high.
An investment opportunity?
Should investors consider buying the shares given Barclays’ bullish view? Well that really depends on what an investor’s looking for in a stock.
For those seeking a solid blue-chip name that offers regular dividends, I think the shares could be worth a look. The shares do look a little expensive today on a forward-looking price-to-earnings (P/E) ratio of 14.7. However, if earnings get a boost from higher oil prices, the P/E ratio will come down.
It’s worth pointing out that a key attraction of this stock is that it looks relatively immune to artificial intelligencer (AI) disruption. You can’t ask Anthropic or OpenAI to generate a barrel of oil.
On the downside, the company’s fortunes are heavily linked to oil price strength. So the shares are a little bit speculative in a sense. We could see oil prices plummet in the short term if the Iran conflict comes to an end soon. This could lead to weakness for BP’s share price.
Meanwhile, in the long run, the increasing focus on sustainability and renewable energy adds some risk. We could see demand for oil drop off, leading to lower prices.
Other opportunities in the market
Personally, I won’t be buying the shares for my own portfolio. I’m more of a growth investor and, for me, there isn’t enough long-term growth potential here.
Given my investing style, I’m going to focus on other stocks capable of generating higher returns over the long run. The good news is that right now, there are plenty of opportunities emerging.
