The Error-Proof Portfolio: Look Before You Leap Into Busted Blue Chips

The Gulf oil spill is a tragedy by any definition, and it's hard to blame anyone for wanting to steer clear of BP stock for its central role in the problem. But for contrarian-minded investors who can hold their noses, the big slide in BP shares may look like an opportunity, too. Any time a company of BP's reach and past profitability drops by nearly 50% in market value, it's only natural to wonder if it's time to give it a look.

To be honest, I have no idea what the "right" price is for BP--it could be $100, it could be $10. Morningstar's stock analyst on BP, Catharina Milostan, also gives her fair value estimate a very high uncertainty rating, meaning that the company's future liabilities are too open-ended to calculate with any certainty what the company is truly worth.

What I do know, however, is that it's a mistake to venture into any badly beaten-down, company--whether its BP, Citigroup General Motors (now trading on the Pink Sheets as Motors Liquidation) or Enron--without a thorough analysis of all that could go wrong. (more)