Warren Buffett says: “Be fearful when others are greedy, and be greedy when others are fearful.” But sometimes it is very difficult to follow this advice, and the current situation for BP’s (BP) stock shows why.

While images of oil-covered birds and tar balls washing onto formerly pristine beaches may give some investors pause, the market, as always, is trying to focus on what the stock is worth given current information. The oil giant’s stock fell more than 50% from Apr. 20, when the massive oil spill began in the Gulf of Mexico, to June 9. Since then, some investors have been getting greedy, pushing shares up 15.8% from their low.

The decision to buy BP stock makes some sense. Even after downgrading the stock on June 10, Standard & Poor’s equity analysts peg BP’s 12-month target price at $58. On June 9, Morningstar lowered its “fair value estimate” for BP shares from $56 to $40. Both those estimates are still well above June 11′s close of $34.

But is it even possible to assign a price to BP shares at this point? I’m skeptical because all the usual ways we value stocks seem to not be working.

1. We don’t begin to understand the true impact of the current situation.

The best example is the news that scientists now estimate the oil well is spewing 20,000 to 40,000 barrels of oil per day. That’s up from a May 27 estimate of 12,000 to 19,000 per day. In other words, we really have no clue how much oil ultimately will end up in the ocean — and what the final cost of the cleanup will be.

2. We don’t know BP’s true financial strength.

The Atlantic’s Daviel Indiviglio does some of the math on the possible impact of the oil spill on BP’s finances. Even taking into account BP’s costs so far, the company still might be making a profit of $9 million per day, he calculates.

I’d add that valuing BP’s businesses based on financial metrics was already difficult before the spill. The price of oil is highly variable, which means that predicting BP’s future prospects is very difficult. According to Bloomberg, this is the quarterly free cash flow for BP over the past 7 quarters (starting from the first quarter of 2010 to the third quarter of 2008): $3.4 billion, $1.6 billion, $3.1 billion, $1.5 billion, $755 million, -$143 million (yes, that’s negative), $7.1 billion.

3. History is no guide.

Morningstar’s Jeremy Glaser points out that markets reacted very differently to the Exxon Valdez spill in 1989:

Exxon stock was trading at a little more than $11 a share before news of the Valdez crash March 24, 1989.The stock steadily fell during the coming weeks, bottoming out at $10.44 on April 11, a fall of less than 7%. Exxon’s share price was then able to quickly make up ground and keep increasing, ending 1989 7% above where the stock was before the accident.

4. This is becoming a political issue.

As British research firm McCall, Aitken, McKenzie & Co. noted June 9:

There remains a chance that the political fervor in the U.S. (and elections are happening now) will whip up to a point where BP gets red carded. [In soccer/football, getting a red card means you've been ejected from the game.] It would be foolish to dismiss that as an impossibility. The fines and penalties due are commercial financial calculations but as we have been saying for several weeks, this is beyond ‘business.’

Adding to the complicated political math, British Prime Minister David Cameron is sticking up for BP, saying it must remain “financially strong and stable.” He is due to tell President Barack Obama that on June 12.

If the BP oil spill is now “beyond business,” the spill’s long-term impact is impossible to calculate. And with the company’s prospects as clear as oil-fouled seawater, investors may not want to make any moves just yet.

Original source for this article: Business Week

Since Nov. 25, the euro has lost 16.3% of its value against the U.S. dollar. Since just Apr. 14, the euro has dropped 7.2%.

While talking to strategists and portfolio managers, I’m detecting growing concern among U.S. stock investors about the strong dollar.

The problem is two-fold: First the impact on the U.S. economy and second the effect on reported corporate earnings.

Bruce Bittles, Robert W. Baird’s chief investment strategist told me the strong dollar “will be a headwind for earnings and perhaps the economy as it cuts into exports.”

A weak dollar makes U.S. overseas exports more competitive, while a stronger dollar could hurt exports. For example, if the dollar is weak, sales of Caterpillar (CAT) construction equipment in Germany will net the company more in dollars when those euros are brought back home.

During the greenback’s consistent downtrend from 2002 to 2008, the weakening dollar again and again boosted year-over-year comparisons of overseas cash flow and earnings for companies like Caterpillar. The dollar bounced around wildly in late 2008 and 2009, but now many worry the dollar has strengthened for good, as much of the developed world lags the U.S. in its economic recovery.

U.S. large-cap companies get a big share of their revenue from overseas. Not all companies actually disclose how much of their sales come from abroad, but Morgan Stanley estimated in March that the S&P 500 receives 31% of its revenue from outside the U.S.

Smaller U.S. companies are less exposed to foreign markets. Maybe that’s one reason why the small-cap Russell 2000 is up 3.2% since the beginning of April, while the large-cap S&P 500 is down 1.1%.

Original source for this article: Business Week

Lee Lowell, Stock and Commodity Options Specialist with Investment U, evaluates the commodities market – specifically the demand drivers of gold and oil, and how to play them.

Lee Lowell (Investment U):

If you’re looking for some calm during the market’s ongoing storm, don’t expect to find much in the commodities sector.

Not that this is a bad thing.

If you know what you’re doing, commodities offer some of the most lucrative and potentially explosive profits anywhere in the investment world. And because simple supply and demand is the key driver for many of these everyday products, it’s a sector ripe for volatility and speculation from hedge funds and large institutions.

Heck, you only have to look at the oil market to see that in action.

It’s not uncommon to see prices cycle from highs to lows and back to highs again in a relatively short time. And it’s this rapid-fire, rollercoaster movement that causes many would-be commodities investors to park themselves on the sidelines, rather than risk their cash.

But this is often a mistake – particularly since there are some quick and easy ways that investors can take advantage of the world’s commodities. So let’s see what 2010 has in store…

Why The Price of Oil Is Headed Back to $100

It wasn’t long ago that oil prices blasted to all-time highs around $147 a barrel (July 2008, to be exact).

But they then set off on a remarkable decline that culminated with the price sinking to lows around the mid-$30 level by early 2009 – a full $115 or so lower than the record high, which equates to a staggering $115,000 move in equity on just one contract.

But as the chart below illustrates, oil has spent most of 2009 busily clawing back a sizeable chunk of the downward move – and I expect that trend to continue in 2010.

Click here for both the oil trends chart and the rest of Mr. Lowell’s article on Investment U.

Original source for this article: Contrarian Profits