Is the BP share price a ‘buy’ right now?

Oil pipes in an oil field

Over the past few weeks, as volatility has gripped the FTSE 100, shares in oil giant BP(LSE: BP) have remained surprisingly resilient. The stock has only declined by 2.4%, excluding dividends, since mid-July, compared to a decline of 7.8% for the FTSE 100 over the same period.

In my view, this resilience shows that BP remains an investor favourite, and could be a great addition to your portfolio if you’re looking for stocks to protect your money from market volatility.

Profits recovering 

Following years of cost-cutting, BP is now a leaner operation than ever before, which bodes well for investors. Indeed, shareholders are already reaping the benefits of the company’s leaner operating structure as the price of oil hovers near a multi-year high. 

Last year, the company became the first of the Big Oil group to re-introduce share buybacks. Most eliminated these efforts to return cash to investors when the price of oil started to decline in 2014.

I’m expecting BP to ramp-up its cash return plans over the next six months as the firm’s bottom line gets a boost from the rising price of oil. On top of the buybacks, investors are entitled to a market-beating 5.6% dividend yield. The shares are hardly expensive either, changing hands for just 11.6 times forward earnings.

With higher cash returns on the cards, I rate BP a ‘buy’ right now.

High risk, high reward 

If BP is one of the FTSE 100 most trusted dividend stocks, at the other end of the spectrum is small-cap oil producer Enquest(LSE: ENQ), which has endured a mixed record of growth.

For the past few years, the company has been struggling under a mountain of debt, built up when the price of oil was trading above $100 a barrel. Management has pulled out all of the stops to keep the business alive and, so far, these efforts seem to be paying off. The rising price of oil has helped, but cost reductions have done the bulk of the heavy lifting, putting Enquest back on a stable footing.

Management is now so confident that the company’s recovery is on-track that it’s started chasing growth again. The group recently exercised an option with BP to expand its ownership of the jointly-owned Magnus field and associated infrastructure and the Thistle and Deveron fields. This deal will give the firm an estimated additional 60m barrels of reserves for a total cost of £106m, funded by way of a rights issue.

As it continues its recovery, I view Enquest as a binary investment. The company will either make a full recovery or fail. I think the former is more likely, and the subsequent stock price recovery could produce tremendous gains for investors. For example, right now the stock is trading at a forward P/E of just 2.4 that’s compared to the sector average of 8.2.

These figures tell me that if Enquest can convince investors its recovery is the real deal, there could be an upside of 240% or more on offer here. The reward is certainly worth the extra risk in my view.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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