Recently, independent energy firm Hess Corporation (NYSE:HES) made business headlines when it announced an $800 million reduction in its capital and exploratory budget to $2.2 billion. Specifically, the cuts will involve reductions in its exposure to the Bakken formation and focused attention on their Guyana-based projects. However, it’s not entirely clear what impact this had on HES stock as the energy industry has more pressing concerns.
Currently, HES stock is trading at just above $30, which means that shares haven’t moved much since early 2005. If that was the only problem, I think a gamble on Hess might be justified. However, I see further calamity in the days ahead. Honestly, how could you not?
I recently drove around town to buy groceries — this whole rice and beans thing isn’t working out for me. Thankfully, the food supply chain appears to have somewhat normalized. Though many products are gone, you can still get a good amount of shopping done. But that’s really the only tangible piece of good news I see.
Throughout the nation, businesses are shutting down because of coronavirus fears. At this point, I’ve stopped reminding my audience that the virus comes from China. Really, who cares? It’s here and we have to deal with it.
And Americans are dealing with it in a manner that is most economically damaging. For instance, AMC Theatres (NYSE:AMC) made an announced earlier this week that they’re closing their cineplexes for between six to 12 weeks. That provides Americans who have no real incentive to leave their homes with even less reason to roam about.
Literally, society is coming to a standstill, which obviously hurts Hess.
HES Stock is Eerily Irrelevant
In some way, falling oil prices should be a boon for HES stock. With prices at the pump steadily rising over the years, electric vehicle makers like Tesla (NASDAQ:TSLA) offered suburbanites an alternative. Rather than pay exorbitant gasoline prices, they can charge their EVs at home. Even better, a growing number of retailers and shopping centers are offering free charging stations.
But if oil prices collapse, the cost advantage of EVs declines sharply while their disadvantages — such as lack of infrastructure throughout every state — becomes more prominent. Not surprisingly, TSLA shares have cratered amid declining oil prices.
However, HES stock and its competing investments have been unable to capitalize on this advantage. Simply, demand is nowhere to be found. With companies encouraging their employees to work from home and avoid unnecessary travel, oil prices won’t recover until this crisis passes.
But how long will this “new normal” last? Unfortunately, it might last longer than you think. Certainly, it’ll last longer than President Trump would like.
Yes, Trump has consistently bragged about the unemployment rate being at multi-decade lows. But a much more realistic figure to consider is the labor force participation rate. This metric represents the percentage of working-age Americans who are actually working. In February 2020, it stood at 63.4%.
If that sounds like a small percentage, it is. It’s only 1.6% higher than its 10-year low, set in September 2015. In the late 1990s, the labor force participation rate was 67%. Obviously, we had fewer people back then.
This bodes poorly for HES stock and other traditional American investments as this widespread panic is occurring while we’re already in a weakened state. Further pain like we’re seeing now could quickly derail the train.
Hess is a Sell … Like Most Other Stocks
If you’re like most Americans, you’ve never seen anything like this before. It stands to reason that this challenge isn’t just a speed bump from which we can quickly recover. We’ll probably have to suffer unprecedented pain before we get a recovery.
Now, I understand that I sound negative and being negative isn’t cool. You can save your biting commentary for another person because I hope you’re right. Genuinely, I want to be that idiot kicking himself for being such a negative Nancy. Believe me, if that’s the consequence for having a robust economy, that’s a price I’ll gladly pay!
But I just don’t see it. From every angle, HES stock and its peers face severe troubles. If you want to go contrarian, be my guest. For everyone else, get whatever money you can from this sinking ship.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he owns shares of AMC.