10 Significant Risk Factors When Investing in a Company

Safety Risks
Balls of sand held together by a thin coating of oil on East Grand Terre Island, La., in the aftermath of the BP oil spill. Suzanne Kreiter/The Boston Globe via Getty Images

Shares in BP traded on the New York Stock Exchange at $59.88 on April 23, 2010, just days after an explosion on the Deepwater Horizon offshore oil rig claimed 11 lives and triggered what would become the largest oil spill in the history of the industry [sources: Google Finance USA Today]. Two months later, BP's stock bottomed out at $27.02, less than half its pre-spill price.

The BP oil spill is a stark reminder that some of the world's most profitable companies are engaged in work that is risky by nature and potentially dangerous to workers, the public and the environment. Oil is a critical commodity, but its extraction, transportation and refinement carries the risk of fire, spills and explosions. In the United States, there's a lot of excitement over natural gas extraction, but some investors are wary of the potential for drinking water contamination following an industrial accident.

When analyzing your investment options, consider the risk of a major fire, natural disaster or environmental emergency. Examine the company's commitment to worker safety, facility security and environmental stewardship, and make sure that their actions match their words.

Remember too, that strong companies can also bounce back from disasters that would wipe out weaker competition. By February 2013, BP stock was trading at $42. Investors who doubled down on BP in the months after the disaster would have made a tidy profit.