Data from artificial intelligence specialist Irithmics released to The Armchair Trader on Monday indicate that institutional investors are exhibiting strong positive bias for BP stock over the short term.
The data is assessed using advanced machine learning techniques and study of the habits of major stock market investors, including fund managers and pension funds.
BP shares: short term institutional appetite running at maximum
Short term appetite for BP stock from big investors looks most positive, with the strongest indicator possible under the study. Over the longer term, while still bullish, investors look less certain. There could be a number of factors at work here, including longer term uncertainty surrounding the global economy and also the possible impact on BP from the shift to alternative sources of energy from oil.
Investors are looking less responsive to news from BP at the moment, but are not expecting any negative news flow in the immediate future.
The BP share price is bearing this out. The stock has climbed from just under 200 at the end of October. to hit 321 at the time of writing. We have seen some bullish behaviour in the market since the start of February, with more buying than selling on most trading days.
“Sometimes, investors wrongly perceive industries to be in decline and hence push them to very low valuations which offers the opportunity for strong future returns,” says Ian Lance, co-manager of the Temple Bar Investment Trust. “This applied to industries such as tobacco and utilities during the TMT bubble which were so out of favour that some labelled them ‘uninvestable’. Consensus was very wrong about these stocks as the combination of growth and re-rating made them some of the best performing stocks in the next decade whilst the high flying technology stocks disappointed investors.”
Lance says that today he hears the label ‘un-investable’ given to the whole energy sector by those who believe that peak oil demand will mean the industry is in structural decline and yet fail to take account of the potential impact that capital being retired from the industry will have on energy prices or of the way the energy businesses are re-inventing themselves.
Are energy stocks the tobacco shares of 2000?
“Energy today could well be tobacco of 2000 and this goes for other sectors where, post pandemic, there are some stocks with very low valuations that the market has given up on as a whole.,” Lance adds. “The UK may be full of old economy stocks, but that doesn’t mean you can’t make money out of them. BP and Anglo American are strong examples, energy and mining about as old economy as you can get yet their valuations remain promising.”
Take a step back and look at the long term price pattern of BP and it still looks interesting: the stock was already on a slide before the pandemic hit, and is still well below the price it was trading at in 2019. Oil futures are also demonstrating that the oil glut is over as we move into the spring. Brent crude was just below $70 at time of writing, which investors are finding encouraging.
Most interesting of all is the fact that big investors remain so bullish in BP; despite all the talk of the end of oil, most cars in my street are still running on petrol or diesel. While there are two Teslas in my street too, in the near term at least it seems that big investors that need to meet pension liabilities will be going back into BP.