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BP, One Year After the Spill: A Slick Buy?

(BP stock analysis article updated for details on BP lawsuits against Cameron, Transocean, Halliburton)

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NEW YORK ( TheStreet) -- With crude oil prices much higher than the market predicted just three months ago, are investors missing the bump that BP (BP - Get Report) shares deserve, regardless of battles against Russian oligarchs playing out in the Kremlin and in the Arctic, and even with the oil spill legal overhang on shares still to be quantified in court rooms?

BP's integrated oil peers have rallied big on above-$100 oil prices, while BP shares are up a measly 1% this year.

Among the U.S. big oil players, ExxonMobil (XOM - Get Report), Chevron (CVX - Get Report) and ConocoPhillips (COP - Get Report) are all up 15% year-to-date.

And it's not just higher oil prices that could make a compelling case for BP shares, but the sudden financial strength of the oil company.

That's right, the same BP which less than a year ago was doomed to bankruptcy -- or at least back-of-the-envelope oil spill liability estimates boldly as high as $200 billion -- is looking pretty good from a balance sheet perspective.

Analysts aren't exactly pounding the table on BP shares given the legal issues, but they are wondering why BP wasn't invited to the oil-prices rally. There's a case to be made that for any investor with a long-term time horizon, BP shares are downright cheap -- as cheap as the cheap shots that less than a year ago were emblematic of the back and forth between former BP CEO Tony Hayward, Congress and the U.S. media.

"BP has done perplexingly poorly year to date, essentially flat while Exxon and Chevron are up 15%," noted Raymond James analyst Pavel Molchanov.

BP shares rallied by 3% on Wednesday, on the one year anniversary of the spill, as many of the European-based integrated oil companies led the energy sector on a bullish day for the markets.

"Oil prices are at least $20 higher than anyone expected last fall, yet BP stock has lagged the market and the rest of the oil stocks," said analyst Fadel Gheit of Oppenheimer & Co. "We still have an outperform on BP shares," Gheit added without hesitation, while acknowledging that the market hasn't agreed.

Higher oil prices are part of the 2011 financial bump that the market hasn't afforded to BP for sure. Oppenheimer estimates that BP will turn a $5.5 billion profit in the first quarter and, as long as oil prices don't collapse, which seems unlikely given the risk premium in the Middle East, BP will make more than $22 billion this year.

"Strong earnings, a strong balance sheet, and plenty of cash flow all show that BP has tremendous financial flexibility. People didn't think BP would ever reach this level six or seven months ago," Gheit noted.

Joining the BP bull chorus, Argus Research analyst Phil Weiss said, "BP shares do look very cheap to me. The overhang caused by Macondo will limit how much investors are willing to pay for BP shares, but they are relatively safely priced for long-term upside. For investors willing to take a three- to five-year position in BP, I'm comfortable that the investor will be happy with their returns over that time," the Argus analyst added.

BP shares had their big bounce once the Macondo well was capped, and reached as high as the $50 mark, but have been stuck on a trading chart slick in the mid-$40 range for much of the 2011.

One year after the oil spill, "there is room for BP shares to play catch up," according to Raymond James' Molchanov.

Indeed, in light of the one-year anniversary of the BP oil spill, here are key issues to monitor for BP shares to break out of their recent range-bound existence....
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