Is BP plc (ADR) (BP) Destined for Greatness?

BP plc (ADR) (NYSE:BP) has certainly seen better days, but it was beaten up quite a bit over its oil spill fiasco in the Gulf of Mexico. The company may find itself paying billions of dollars more in damages than it’s already been forced to pay. A conviction for gross negligence  could cost BP up to $17 billion, not including unspecified punitive damages by claimants who didn’t get their piece of the first $8.5 billion settlement BP paid out last year.

Over the next decade, BP plans to direct as much as 75% to 80% of its capital expenditures toward upstream projects. This focus will be aimed at operations in Angola, Azerbaijan, the North Sea, and the Gulf of Mexico, where BP plc (ADR) (NYSE:BP) has more than 40 major projects. These four regions combined should generate roughly half of the BP’s operating income by 2020. In a recent announcement, BP, Exxon Mobil Corporation (NYSE:XOM), and ConocoPhillips (NYSE:COP) combined to invest another $1 billion in the North Slope of Alaska over the next five years. This decision was spurred by recently passed tax reforms that make drilling in the region more attractive to oil companies. The three companies are also mulling a plan to drill more wells and remove bottlenecks from current facilities in the area, and this expansion would require an additional $3 billion in capital investment.

Investors in BP today would be paying just a bit over eight times current-year forecast earnings, and might expect to see strong earnings growth of 40% by year-end. BP’s dividend is also quite appealing: its yield is over 5%, and been growing strongly since reinstatement after a period of nonpayment during the Gulf of Mexico disaster. BP’s valuation makes it an interesting proposition for investors willing to take on a higher risk of litigation pain for a potentially higher return.

Putting the pieces together
Today, BP has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.

The article Is BP Destined for Greatness? originally appeared on Fool.com is written by Alex Planes.

Fool contributor Alex Planes and The Motley Fool have no position in any of the stocks mentioned.

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