BP stock: Buy while it's inexpensive or sell?

The decision to sell depends on individual circumstances, one financial planner says.


Published: Thursday, July 1, 2010 at 6:01 a.m.
Last Modified: Wednesday, June 30, 2010 at 11:12 p.m.

Mark Feroglia of High Springs backed off on his decision to buy BP stock when its value sank by half after the oil rig explosion that has dumped tens of thousands of barrels of oil a day into the Gulf of Mexico.

Facts

About BP locally

All BP stations in Florida are independently owned and operated, according to the independent BP Amoco Marketers Association.
Following are the dispersal of BP stations in Alachua County, according to bpama.com:
13 in Gainesville
1 in Micanopy
1 in Waldo
2 in Alachua

The 61-year-old retiree said his decision was based on the stock's potential value and not the principle of owning a piece of the latest public enemy No. 1.

"To buy BP at this point is a gamble, not an investment," he said. "I certainly wasn't going to buy it when there's no telling if there's going to be a company in a year or so."

Concerns about value and not emotional decisions to punish the company are what should drive investment decisions, financial advisers told The Sun.

"No one I have spoken to made an investment decision on a political statement and I would strongly suggest that people don't," said Jay Murray, financial adviser with Edward Jones in Alachua. "We would be very much at risk of making a poor investment decision if we're making an emotional response as opposed to a rational response."

Murray has had questions about whether BP may be a good investment long term as the price goes down.

Edward Jones is advising people not to buy BP stock and to sell it if they own it because the company discontinued its dividend payment and faces uncertain liability for the spill.

But financial planner W.J. Rossi of Koss-Olinger Financial Group said the decision to sell depends on individual circumstances.

Someone who bought the stock in 1995 at $20 and still has a long horizon to cash out may want to hold on while someone who bought within the last year and lost half their value may need to take action, he said.

"The problem with making recommendations is we don't have all the information yet," Rossi said. "We don't know how costly this is going to be to BP. Some people are selling just because of the fear of the unknown of how bad will this be with litigation claims, cleanup costs, etcetera."

BP stock dropped from $60.48 on April 20, the day of the oil rig explosion, to a 13-year-low in mid-June as the company shed $89 billion in value, Bloomberg News reported. BP's stock has fallen even lower since, and on Wednesday closed at 28.88, up 1.21 from Tuesday's closing.

The low stock price could have at least a small effect on many people's investments.

Since it's a very common holding, anyone with retirement accounts invested in international securities has a very good chance of owning a small piece of BP, Rossi said.

To find out, Murray recommends searching for a mutual fund on a website such as finance.yahoo.com and clicking on the tab for holdings.

The pension plan for about 1 million current and retired state employees held $103.8 million worth of BP stock through June 11, a loss of $65.6 million in value since the oil rig accident, according to Dennis MacKee, spokesman for the State Board of Administration. During that time, fund managers also have sold BP stock at a loss of $21.5 million, he said.

While a BP rally could make up for the loss of unsold funds, the combined loss to date amounts to less than 8/100s of 1 percent of the $114 billion fund.

With about a dozen external portfolio managers, MacKee said the sell-off was based on some individual managers' views of the stock's performance.

"Being a pension fund, you have a fiduciary responsibility, so you can't buy, sell or hold to make a political or social statement," he said. "The management of the fund has to be what they see is in the best financial interest of the people the money is entrusted for."

State legislators have made a couple political decisions on investments. The 1999 statute establishing the Lawton Chiles Endowment Fund for tobacco education does not allow investments in tobacco-related industries and the 2007 Protecting Florida's Investments Act required state retirement funds to divest from any companies doing business with Iran or Sudan.

Contact Anthony Clark at 374-5094 or anthony.clark@gvillesun.com.

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