Marathon Oil (NYSE: MRO) is a prime example of an oil play that investors shouldn’t be considering.especially since MRO stock is worth just about a third of what it was in January.
Source: Casimiro PT / Shutterstock.com
Volatility has become the new normal in the US stock market, as the novel coronavirus continues to hang over global economic growth like a storm cloud. Many investors have turned to the energy sector to look for value as tech stocks’ valuations have skyrocketed— but beaten-down oil stocks are depressed for a reason.
This year a handful of bankruptcy-bound stocks have made their way higher as speculative investors bump their share prices higher. MRO stock is one of these risky bets that Robinhood investors have been loving in recent weeks.
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Part of the reason for the interest in Marathon is likely investors’ search for pockets of value in the current market, and the energy sector certainly qualifies.
But importantly, a big part of the reason for MRO stock’s sudden popularity could be that a lot of people are buying it— a fact which makes me even more dubious.
Robinhood Traders Flock to MRO Stock
I want to preface this by saying that not all Robinhood traders are cowboys flying by the seat of their pants. Even if they are, in some cases many are showing up the so-called “smart money” institutional investors. But one of the problems with the Robinhood stock trading platform is that it’s set up as a sort of social media for stock traders.
Not only does it gamify the trading process by making suggestions and encouraging sales, but it keeps users up to date with what their fellow semi-pro traders are buying. As InvestorPlace’s David Moadel pointed out earlier this week, once MRO stock was recognized by the Robinhood contingent as a stock to buy, traders rushed in.
The rush into MRO stock is seemingly unjustified, considering that the firm has yet to deliver positive quarterly earnings. Moadel went as far as saying that Robinhood and its merry band of traders may be looking to MRO because its similar to Whiting Petroleum, another energy firm that’s been popular on the platform.
The Trouble with Marathon Stock
Just because a stock is popular doesn’t mean it’s a bad play, though. Just look at some of the big tech names that have been thriving throughout the pandemic. But Marathon doesn’t have a whole lot going for itself these days, and that’s what makes it a poor choice.
Production at MRO fell by 7.6% from the first quarter to the second quarter and output is seen declining once again in the third quarter. By Q4 the firm may be ramping up production once again to move back toward normal levels.
That means the firm’s finances depend on the price of oil moving forward. Marathon is able to break-even when oil prices are between $30 and $35 per barrel. That’s a testament to management’s cost-cutting efforts—but it doesn’t mean the company is going to be a cash cow anytime soon.
Oil prices have only risen slightly above those levels to sit below $40 per barrel. At the time of writing, WTI was trading at roughly $37 per barrel.
Oil Uncertainty Makes Marathon a Poor Choice
Over the summer investors seemed to be looking at the world through rose-colored glasses. Most were expecting increased driving and a sharp economic rebound to boost demand for the commodity. But September has seen oil prices start to come crashing back down to earth as demand hasn’t quite lived up to investors’ lofty expectations.
Not only that, but no one is sure exactly how the pandemic will impact oil prices in the months to come. Renewed lockdowns and a potentially deep recession have the potential to derail the rebound in oil prices through the end of the year.
That would be bad for the sector as a whole, but specifically for MRO stock investors, who really need prices to be above $40 to expect positive returns, it could prove disastrous.
On the date of publication, Laura Hoy did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.
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China attacks US at Security Council
China on Thursday lashed out at the United States at a high-level UN meeting over its criticism on the coronavirus, with its envoy declaring, “Enough is enough!”
Two days after President Donald Trump used his annual address to the General Assembly to attack China’s record, the US ambassador to the United Nations also took an outraged tone — after which her Chinese counterpart showed palpable anger.
“I must say, enough is enough! You have created enough troubles for the world already,” Chinese envoy Zhang Jun told a Security Council meeting on global governance attended through videoconference by several heads of state.
“The US has nearly seven million confirmed cases and over 200,000 deaths by now. With the most advanced medical technologies and system in the world, why has the US turned out to have the most confirmed cases and fatalities?” he asked in English.
“If someone should be held accountable, it should be a few US politicians themselves.”
Using a phrase often told by US leaders to China, Zhang said, “The US should understand that a major power should behave like a major power.”
The United States “is completely isolated,” he said in remarks enthusiastically backed by his Russian counterpart.
– ‘Shame on each of you’ –
His remarks came after the US ambassador, Kelly Craft, opened with angry words that took diplomats off-guard.
“You know, shame on each of you. I am astonished and I am disgusted by the content of today’s discussion,” Craft said.
“I am actually really quite ashamed of this Council — members of the Council who took this opportunity to focus on political grudges rather than the critical issue at hand. My goodness.”
Diplomats said they were puzzled at the tone of Craft, who had left by the time the Chinese ambassador spoke.
Craft was “very aggressive” after a session that had been “more or less full of consensus,” one diplomat said on condition of anonymity.
With world leaders asked to send speeches in advance for a virtual General Assembly, Chinese President Xi Jinping could not reply Tuesday to Trump and delivered a mild-mannered speech in which he unveiled more ambitious targets on climate change.
But the spokesman for the General Assembly, Brenden Varma, said China had requested to speak next Tuesday, the day set up for any nation to reply to statements.
Trump in his speech had demanded action against China for spreading the “plague” of Covid-19 to the world.
China suppressed news of the respiratory disease when it first emerged last year in Wuhan and initial advice played down the risks of transmission.
China’s communist leaders have more recently tried to transform the narrative into one of the country’s success in stopping the virus.
Trump’s response to the pandemic — which he has provocatively called the “China virus” — has emerged as a major political issue as he seeks a new term in the November 3 election.
– Africans seek debt relief –
Several African leaders used their virtual addresses to the General Assembly to plead for more international assistance, fearing that Covid will impede development.
“Our nations are asking for financial support that rises to the level of the economic crisis they’re witnessing,” said Niger’s President Mahamadou Issoufou.
“Just a debt moratorium will not be enough faced with the challenges that have arisen. We simply have to cancel the debt completely,” he said, reiterating a call made Tuesday by his counterpart from the Democratic Republic of Congo, Felix Tshisekedi.
The Group of 20 major economies in mid-April suspended debt payments for the poorest nations through the end of the year as they face major budget shortfalls due to the Covid shutdown.
The African Union is seeking to extend the moratorium through 2021, warning of dire economic effects from the health crisis.
“This pandemic could erase more than a decade of economic growth and social progress achieved by the African continent,” Ivory Coast President Alassane Ouattara said.
Despite the economic concerns, Africa has been one of the regions least affected in health terms by Covid-19, with the continent reporting 1.8 million cases and 34,500 deaths.
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