As BP stock plunges and rises, is it buy or sell?

As BP stock plunges and rises, is it buy or sell?

By Adam Shell, USA TODAY

NEW YORK — BP's stock has been gushing red ink as investors view the fallout from a leaking oil well through a barrel-half-empty prism.

With BP's stock down almost 50% — or almost $90 billion in value — since the April 20 rig disaster in the Gulf of Mexico, is it screaming, "Buy me, I'm on sale," or warning, "Sell me, more risk ahead"?

BP rebounded Thursday from a 16% drop a day earlier, rallying 12.3%, to $32.78. The stock is down 46% since April 20. Analysts attributed the rally to a report from an Asian firm, Standard Chartered, which said it makes sense for PetroChina, the Chinese oil company, to buy BP.

BP presents a dilemma for investors: Buy or sell a stock in crisis?

•The bearish case. Given that there are still so many unknowable, unquantifiable facts surrounding BP and the oil spill, now isn't the time to dive headlong into the stock, despite its steep drop, says Philip Weiss, senior energy analyst at Argus Research.

BP still hasn't plugged the leak, so the full extent of the environmental damage is unknown. There is no way to know how much BP will have to spend to clean up the mess and other related costs.

As a result, "Taking a short-term position in BP amounts to speculation, not investing," Weiss says.

A big fear is that BP will suspend or reduce the payout of its dividend, which now yields a hefty 9%. The Obama administration is calling on BP to not make dividend payouts until the spill is cleaned up.

Investors got rattled Wednesday when some U.S. lawmakers said BP should pay for the wages lost by oil-related employees in the Gulf whose jobs have been put on hold during the six-month moratorium on deep-water drilling.

Many investors also fear that BP will be forced to file for bankruptcy protection.

•The bullish case. Fadel Gheit, an analyst at Oppenheimer, says BP's stock is currently pricing in a worst-case scenario. His advice: "If you don't own the stock, buy it. If you own it, don't sell it." He has a 12- to 18-month price target on the stock of $55 per share. That's nearly 70% higher than Thursday's closing price.

Many investors began to fear that BP's liabilities will balloon after President Obama and lawmakers talked tough about the expenses that BP should pay, Gheit says. But there's "not a chance" the government can force such payments on BP, he says, making a bankruptcy filing unlikely.