3 Reasons to Invest in BP

Scandals can be gifts to investors.

When an incident happens that does not cripple the business model or the commercial enterprise of a publicly traded company, it is an ideal time to buy for the long term. That has certainly been the case with BP BP, the major oil and natural gas company based in London, since its Deepwater Horizon explosion in 2010. While the company has recovered, it is still not trading at the valuations of an Exxon Mobil XOM or a Chevron CVX.

That flashes a "buy" signal to long-term investors.

BP is undervalued as it is trading at a price-to-earnings ratio of around 6.4. For Exxon Mobil, it is over 13. The price-to-earnings ratio for Chevron is over 10. It is also selling at a more attractive price-to-book and price-to-sales valuation.

While its valuations are low, its dividend is high.

The dividend yield for BP is around 4.75 percent. Exxon Mobil has a dividend yield of 2.53 percent. It is around 3.2 percent for Chevron. As detailed previously, the income component of major oil companies is a very attractive feature.

BP is moving forward while the price is still lagging.

There is also a bullish future for oil.  Warren Buffett has invested heavily in the sector. A recent report from the International Energy Agency predicts a massive increase in the demand for energy. That will increase the need for oil.

For the last year, BP rose about 16 percent. A nice gain, but below what the Dow Jones Industrial Average and the S&P's 500 Index increased. There is still upside in the stock. It is undervalued compared to other major oil firms. The generous dividend pays for investors to wait for the share price to fully value the stock.