Why a Growing Side Business Isn’t a Small-Time Endeavor for BP plc (ADR) Stock

An image of multiple stacks of coins Credit: Shutterstock photo

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

This week, energy icon BP plc (ADR) (NYSE: BP ) announced it was spending $227 million to build another lubricant in China. It wasn't the kind of news that turns heads. Indeed, BP stock didn't even budge in response, as it looked like just another throw-away press release - the kind of news a company posts more out of obligation or courtesy than to excite investors.

A second, closer look at the news, however - in the right context - reveals there's more to this news than it may seem like on the surface.

Oil Changes and Lube Jobs

Don't misread the message. BP was and still is an oil company. It's just not solely an oil company that extracts and refines oil for the purpose of creating fuel that powers your vehicle. It's also in the motor oil (and grease) business, selling its wares under the Castrol brand .

No big deal compared to the 2016's $1.7 trillion oil market ? Granted, that's a big number. However, the sales of motor oil, axle grease and the like aren't exactly small. By 2025, the automotive lubricant market is projected by some to be worth $87 billion .

The numbers get much bigger much faster when taking "automotive" out of the picture. When considering all forms of lubricants, the figure swells to a projected market size of $162 billion by 2019 .

BP doesn't intend to reach out beyond the automotive lubricant market, though many lubricants like the consumer-friendly Vaseline are petroleum-based, so never say never.

Likewise, knowing that BP hasn't been afraid to create and develop genetically modified microorganisms as a means of fighting oil spills, it's not difficult to envision BP looking outside the non-automotive world for opportunities.

Even if BP stays in its proverbial automotive lane, however, there's something to be excited about.

This will be the third such lubricant-mixing plant BP operates in China , which is right where it needs to be. See, the Asia-Pacific region - China, mostly - is expected to drive annual growth of 3% for its lubricant market through 2019, as the country's level of car ownership reaches critical mass.

In 2015, the number of cars in China grew a whopping 12.5% . Some researchers believe the number of vehicles on China's roads will increase between 13% and 17% per year through 2022 , reaching as many as 419 million vehicles by the end of that period.

They're all going to need oil changes and lube jobs.

And it's in this light that something BP's Downstream CEO, Tufan Erginbilgic, said that means so much more. He commented of the announcement, "Premium lubricants are a growth business for BP and ensuring that we can meet demand in a country growing as quickly as China is essential to our success."

Bottom Line for BP Stock

Again, wading deeper into the lubricants market isn't going to be a game changer for BP stock. It's still first and foremost an oil and gas player, subject to the rise and fall of oil prices (for better or worse). This secondary line of business isn't a panacea.

On the other hand, the nickels and dimes can add up, smoothing out the inherently volatile results BP and its peers like Chevron Corporation (NYSE: CVX ) and Exxon Mobil Corporation (NYSE: XOM ) have been struggling to stabilize for years now.

At stake is a bigger piece of the multibillion-dollar motor oil and automotive grease market - a market that's not only worth $80 billion, but a market that's not been addressed all that efficiently, particularly in China. If BP can turn up the heat just a little bit on this front (and it is), this deeper foray into the secondary business might offer a decent little bump to the bottom line.

Just something to keep in mind while you're handicapping oil prices and their impact on BP stock.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter , at @jbrumley.

More From InvestorPlace

Compare Brokers

The post Why a Growing Side Business Isn't a Small-Time Endeavor for BP plc (ADR) Stock appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.