I wrote this for my 'Phil Town Live' students on FRIDAY, JULY 2, 2010. I'd just loaded up at $27 but I think what I wrote is worth reading for a lesson on what to look for when everyone is afraid to buy the stock because Jim Cramer is saying its going to go under.
IS BP GOING BANKRUPT?
Since I’ve taken a long position in BP (meaning I own the stock and will make money if the stock goes up), I thought I’d discuss the possibility of total disaster for my investment – BP goes bankrupt.
Unless you’ve been hiding under a rock, you know BP had one of their Gulf of Mexico deep drilling rigs catch fire and kill 11 guys. The platform then sank and when it did the mile long drilling pipe hanging off the bottom of the platform snapped off and the pent-up pressure in the hole gushed oil into the Gulf of Mexico. Initially BP reported the gusher was about 1000 barrels of oil per day but now they think it may be as high as 60,000 barrels a day. They are working on containment with robots at 5000 feet below the surface and have partially contained the well. Within 6 weeks they will have completed two wells that will take the pressure off this broken pipe and end the flow. Oil has washed ashore on Gulf Coast states beaches and some environmentalists are calling this spill the biggest environmental disaster in US history. In addition, people have been killed and injured and jobs and investments have been lost. Estimates of damages runs from billions to trillions and over 300 lawsuits have been filed against BP. Cramer thinks the lawsuits will force the company into bankruptcy.
Why would anyone invest? In particular, why did I invest at $27?
These are all my opinions. I could be wrong and Cramer could be right. Either way, for sure, this is not an investment for an amateur. This investment is going to have to be closely watched. But I do believe I like the way this looks very much.
Reports are starting to come in that the spill isn’t going to turn the corner and move up the east coast. Oil is being absorbed in deep water and may not affect much of anything more than it already has. The impact to the Gulf States is major but well within BP’s ability to pay the damages and may not be as bad as originally projected. In other words, right now things are starting to look better.
Is it too late to get in? No. I think, if you do the 4Ms on this business and you decide you like it, you may find the price right now just about as attractive as it was at $27. But do not buy this without a plan. In the Tuesday and Thursday night investing Talks I will be discussing ways of mitigating my risk on this investment as it unfolds.
Now go play.