Buy Like Buffett

BP (NYSE: BP) may have survived the Gulf coast oil spill but the company is undergoing a major change. The company’s long time name is likely to change. The company is already cleaning out top level management with CEO Tony Hayward expected to lose his position. Top level management will be dismissed due to the poor handling of the oil crisis. The next thing to likely go away is the BP name. BP has to change the company name in order to move forward. The new name will be familiar to old customers, Amoco.

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There is a huge public outcry against BP (NYSE: BP) and rightfully so. The oil conglomerate’s lax standards and reckless behavior has led to the greatest oil spill that we have ever seen. Hundreds of thousands of people are boycotting BP stations and refusing to buy their gas there. Others are rooting for a BP bankruptcy. Although BP should have to pay every dime back to claimants harmed by the oil spill, a BP bankruptcy is not in the best interests of the United States.

Here are 3 reasons to root against a BP bankruptcy.

1. The federal government would be on the hook for BP’s liabilities.

A BP bankruptcy means that the company would be unable to pay back all of its liabilities. If BP declares bankruptcy then the government would be responsible for paying off all of the damage claims. The federal government would have to reimburse fishermen, oil rig workers, cleanup crews, and other employers. More than seven million businesses have been affected by the BP oil spill. If BP defaults then taxpayers are on the hook for all of the compensations claims.

2. The United States would increase its dependence on Middle Eastern oil imports.

BP is the only large integrated oil company that does not import a large percentage of its oil from the Persian Gulf. In 2009, Exxon (NYSE: XOM), Valero (NYSE: VLO), and Chevron (NYSE: CXV) imported 26%, 29%, and 36% of their oil from the Persian Gulf. Each of these companies imported over 100 million barrels from the Gulf. BP North America imported only 10 million barrels from the Persian Gulf which was less than 6% of its total imports. A BP bankruptcy would mean more U.S. dependence on Middle Eastern oil.

3. The number of jobless Americans would rise even further.

A BP bankruptcy would hurt all of the small business BP station owners. The majority of BP gas stations are independently owned and operated. Approximately 90% of BP gas stations are independently owned which means that a BP boycott hurts store owners and not BP. BP makes its money on oil exploration and drilling. A long term BP boycott will just increase the unemployment rate by putting thousands of station owners and families out of business.

As a BP shareholder, I would obviously be against a bankruptcy filing because it would completely wipe out my equity position. But as you can see a BP bankruptcy would have a ripple down effect on all U.S. citizens as well.

What do you think?

Photo by: showmeone

I own stock in each of these companies and have never sold a share. I look to add to my positions when I think the prices are cheap. This is by no means a recommendation for you to buy these stocks. I just think that the information may be useful.

1. BP – This is my favorite oil and natural gas company. I love the growth prospects for the company and the dividend is great. BP has consistently increased the dividend for as long as I have owned the stock. I even buy my gas from BP because it makes me feel like I am paying myself.

2. Nike – The swoosh dominates the athletic apparel market. Nike continues to sell athletic gear both domestically and globally while leaving its competitors in the dust. Nike hasn’t been cheap enough for me to add shares in quite some time. The recent drop in price is giving me my best buying opportunity since 2006.

3. Costco – I love the Costco business model and the growth potential. Costco offers discounted goods and services while paying employees fair wages. I think that Costco could potentially open hundreds of new stores domestically over the next decade. I must like Costco a lot considering that I have held it through the beating that retail has taken.

4. Burlington Northern – I must admit that I only found Burlington Northern because Buffett was buying the stock. Even though the stock is near its 52 week low and transports are declining; I am looking to add shares. The railroad business has been the most cost efficient way to transport basic materials for years and should continue to be so.