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I FTSE 100 the leading stock index is up 7% in 2024. It has grown as appetite for blue-chip stocks has rebounded after years of underperformance.
I have long felt that Footsie shares have historically looked cheap. And investors are now piling into the index in search of bargains. It's a trend I expect to continue in 2025.
I also plan to continue buying FTSE 100 stocks. My other purchases in the year so far include Aviva, Legal & General, Ashtead again Coca-Cola HBC. But there are certain companies that I will continue to avoid like the plague.
Great oil BP's (LSE:BP.) is one of them.
Have a bee in one's bonnet
The ongoing conflict in the Middle East has driven up oil prices this year. And with the rise of the military, they could rise further in 2025 if fears of an unwarranted deficit prevail.
This will naturally boost oil producers like BP. However, as things stand, I think the risks of buying an energy giant outweigh the potential benefits.
This is because any disruption to supply may be offset by a drop in demand. It is dangerous that the International Energy Agency (IEA) has sounded the alarm in its latest report this week.
The body says “supply continues to flow, and without major disruptions, the market faces a large surplus in the new year.“.
Due to weak Chinese demand, the IEA forecasts global oil demand of 1m barrels per day by 2025. This is down significantly from the 2m barrels we consumed daily during the 2022-2023 post-pandemic period.
Meanwhile, the IEA thinks supply from non-OPEC countries alone will be 1.5m barrels a day. Combined with OPEC cartel output, the world could be swimming in an oil glut that drives down prices.
Debt worries
Crude fell below $70 a barrel in recent hours. And there could be more blood on the ground in the coming weeks and months if key economic releases from the US and China continue to disappoint.
BP's share price is down 16% in the year to date. This is larger than the 9% drop in Brent crude prices over the period, and reflects fears about how the oil giant will pay off its high debt in a low-price environment.
The company's total debt was $22.6bn as of June. And it warned this month that rates would be higher at the end of the third quarter, due to weaker refining components.
Today, BP's total debt to EBITDA is 2.3 times. This is higher than I would like in the current climate. If oil prices fall this could spiral out of control, putting significant pressure on dividends and share prices.
BP trades at a price-to-earnings (P/E) ratio of 8 times. But given the worrisome near-term outlook – not to mention the worrisome long-term picture as renewables take over – I'd rather buy some FTSE shares for 2025.
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