Whitney Tilson is convinced that BP is simply too cheap to ignore at the current valuation. Given the steady stream of negative headlines due to the massive Deepwater Horizon oil spill, BP shares are quickly approaching a 45 percent discount to the stock price that prevailed during much of April. Mr. Tilson makes it clear that BP shares could certainly fall even further in the short run, but he believes that the dividend should be safe.
While Mr. Tilson’s comments regarding BP’s dividend make logical sense, the political pressure on management may soon require a cut regardless of the company’s ability to make payments. Furthermore, the “asbestos-like” qualities of BP’s liability exposure that Mr. Tilson mentions will make total economic exposure unknown for years or decades to come. BP’s management has also proven remarkably incompetent and politically tone deaf throughout the crisis. It may make more sense to look elsewhere in the beleaguered oil and gas industry where stock prices have also been hammered rather than to accept the uncertainty at BP.
To learn more about Whitney Tilson’s bullish case for BP, view the video below.