There’s a hilarious scene in the third season of the short-lived cable TV series “Arrested Development” where investment guru Jim Cramer (making a cameo as himself) upgrades the much maligned Bluth Company stock from “sell” to “don’t buy”—causing Bluth family members and shareholders to celebrate their good fortune. In a turn of events that would be funny if it weren’t so pathetic, BP shareholders are celebrating the turn of an equally friendly card from the hands of the experts.
That in the midst of the greatest oil spill in history (the Mother of All Oil Spills, if you want) and a shockingly inept response to that disaster, financial analysts are still shouting “buy!” anytime anyone ever mentions BP stock says a lot about people’s faith in crude oil futures, no matter who’s responsible for drilling that oil out. Which is a comforting thought, really. But are the experts right? Is buying BP stock right now a good idea?
The Argument for Buying
BP bonds have undergone a severe battering. Since the Deepwater Horizon explosion on April 20, stock has plummeted from the $60 range into the high $20s. Conventional wisdom always tells us to “buy the dips, sell the rips” and if this ain’t a dip, nothing is.
The Argument Against Buying
Just like the old song says, what goes up must come down. And what’s still up has a lot of room to fall. Each day the gusher isn’t contained is another opportunity for BP crude oil futures to drop even farther, and at $28 there’s still a long way to go before hitting bottom.
The Smart Money
Unless you’re leaving the planet and won’t be able to keep a close eye on how BP stock is performing daily, the smart money suggests holding out for an even steeper decline before wading in and scooping up shares on the cheap.
It’s important to remember that all investment strategies contain a certain measure of risk, and that any decisions made should be based on a solid understanding of the underlying principles involved.
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