5 shares for your ISA: BP

BPPouring oil into your ISA could produce gushing tax-free returns!

Each day this week we're highlighting a share you may wish to consider for your ISA. Today we turn our attention to BP, which seems to have regained its momentum following the Deepwater Horizon oil spill.

In April 2010, BP (LSE: BP) was hit by a hammer blow that -- for a while -- seemed to threaten its very existence.When BP meant 'Big Problems'
An explosion on the Deepwater Horizon oil rig killed 11 workers and sent millions of barrels of oil spilling into the Gulf of Mexico.

As well as causing widespread environmental destruction, this tragedy destroyed BP's reputation in the US. As a result, the firm joined the ranks of the 'fallen angels' -- once-proud companies whose share prices plunged from their peaks following catastrophic mistakes.
By late June 2010, BP's share price had more than halved, crashing 55% from a pre-spill 643p to just 296p, at which point they were a blow-out bargain.

BP bounces back
After the damaged well was finally capped in mid-July 2010, BP's share price rebounded. Exactly 12 months after dropping below £3, BP shares changed hands at 444p, a return of precisely 50% from their low. BP's share price has since reached £5, valuing the oil giant at nearly £95 billion.

Almost two years since that fateful day in the Gulf of Mexico, BP is a very different company. In order to restore its reputation and its share price, BP replaced British chief executive Tony Hayward with US-born Bob Dudley. More importantly, it created a $20 billion trust fund to meet compensation and clean-up costs for the spill.

Since then, BP has handed out nearly $9 billion in compensation to affected parties and this month agreed to pay a further $8 billion. What's more, the oil behemoth still faces the possibility of a long, drawn-out claim for damages from the US Department of Justice. Estimating how much this will ultimately cost is practically guesswork, with forecasts ranging from $5 billion to $22 billion.

To pay the vast costs of the potential claims, BP has been selling assets all over the world to raise cash and reshape the company. In total, it aims to raise $38 billion from sales. In addition, BP has won billions of dollars in compensation from its Deepwater Horizon partners.

BP = Bargain Price
Whatever the outcome of the US litigation, BP looks in much better shape today than it was two years ago.

On 7 February, BP reported a full-year replacement-cost profit of $21.7 billion for 2011, up from $20.5 billion for 2010. Also, cash flooded into BP last year, with operating cash flow hitting $22.2 billion, 63% ahead of 2010. As a result, BP's net debt fell to $29 billion, which is a modest fifth (20%) of its market value.

Although its business is gaining financial momentum, BP's shares still have some catching up to do. At £5, they trade on a forward price-earnings ratio of just 7.3 and offer a prospective dividend yield of 4%, covered 3.4 times. In contrast, the FTSE 100 currently trades at a more expensive P/E of 9 and offers a lower 3.3% dividend yield.

In my view, BP's bargain-basement fundamentals make the share one of the cheapest members of the elite FTSE 100 index. Hence, the company looks ideal for ISA investors seeking income and/or capital gains!

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