Fight Temptation and Avoid Whiting Petroleum Below $1

When investors see penny stocks, they are either drawn in like a moth to a flame or have 100 red flags go off. With Whiting Petroleum (NYSE:WLL) trading for less than a buck, this scenario is no different. So what does WLL stock do for you – is it attractive or unattractive? 

an engineer in a hard hat looks over an oil production rig
Source: Shutterstock

For me, I am in the latter. With that being said though, I know that penny stocks can generate monstrous returns if and when timed correctly. The problem is, these names trade this cheap for a reason and that’s because they are on the brink. 

Here’s my problem with WLL stock: Shares are down 95% over the past year. That is not a winning formula to me and, without knowing anything else about the company, investors can conclude that this type of performance didn’t happen by accident. 

Perhaps if it was mid-March, one could make a case – when the market was at its low – that the sell-off in Whiting was an overreaction. At this point though, that argument is out the window. 

Breaking Down Whiting Petroleum

Whiting Petroleum’s biggest issue is that its business was in decline before the novel coronavirus leveled the stock and its industry.

Free cash flow went from $134 million in 2018 to a $49.9 million outflow in 2019. Revenue sank from $2.08 billion to $1.57 billion in the same timeframe. Net income plunged from $342.5 million to a loss of $241.1 million. 

Those are not good trends ahead of a global pandemic that would crush demand for oil. When Covid-19 swept across the world, there was suddenly no demand for oil and gas. Cars weren’t driving and planes weren’t flying. 

The global oil market already had ample supply before the pandemic. Nations across the world – including here in the U.S. – could pump additional oil on a whim. When prices went up, production could climb effortlessly to take advantage of those higher prices. 

At the end of 2019, WLL stock had $7.6 billion in total assets. As of the end of March, that figure was down to just $4.5 billion. Total liabilities climbed from $3.6 billion to $4.1 billion in the same stretch. 

On the plus side, current assets almost tripled from $330 million to $1.02 billion. However, the harrowing downside is that current liabilities increased seven-fold in those three months. The figure jumped from $550.4 million to $3.87 billion. 

With current liabilities at an almost 4-to-1 ratio to current assets, it creates a big concern over liquidity. Essentially, can the company cover its short-term obligations? With no profit in sight and cash outflow rather than inflow, it’s unlikely. 

Then again, that’s why WLL stock trades for less than $1. 

Trading WLL Stock

Daily chart of WLL stock price
Click to Enlarge
Source: Chart courtesy of

The fundamentals for Whiting Petroleum are terrible. I don’t think that’s too unexpected at this point though. For a firm that was already feeling the heat, Covid-19 likely dealt an unrecoverable blow. 

For me personally, I will avoid WLL stock. I do not like trading penny stocks because the moves are violent and often unpredictable, while liquidity can be a nightmare. I would rather focus on sound business models and stocks in a strong trend than try to pick which bankruptcy candidate will see the next short squeeze higher. 

Just look at Hertz (NYSE:HTZ), GNC (NYSE:GNC) or even Chesapeake Energy (NYSE:CHKbefore they finally folded. I don’t know if or when Whiting will suffer a similar fate, but the price action is just too finicky for me. 

Losing the $1 mark was also a tough blow, technically speaking. This level has been support for two months now. Bulls do not want to see WLL stock lose the June low near 70 cents. Below could accelerate the selling pressure. 

Back above $1 and WLL will have to contend with its 20-day and 50-day moving averages. Above those marks and shares have the potential to squeeze higher. 

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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