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As Energy Investments Go, Marathon Can’t Finish the Race

If you can’t recall what you were doing right about now in 2004, don’t worry as we’ll give you a nudge: It was the last time you paid less for a gallon of gas. Going into Labor Day, GasBuddy predicted a national average of $2.19 per gallon, “down nearly 37 cents from last year and the lowest priced Labor Day since 2004’s $1.82 per gallon average.” Terrific for you Ms. Motorist, but terrible for Marathon Oil (NYSE:MRO). Times were tough in the energy sector well before the novel coronavirus led to plummeting consumer demand. Moving into the fall, investors in MRO stock have even less to celebrate.

Marathon Oil (MRO) Loko at the top of a mobile device.
Source: IgorGolovniov /

The question is, how much lower can things go and will Marathon’s financials, assuming that they’re still somewhat sound, hold out hope for a tailor-made “buy low” moment? Better still to ask how the oil sector is doing as a whole, which is to say it isn’t.

The slump for energy stocks dates back four-plus years at this point and ironically the industry created the headache in the first place. The massive scaling and efficiency of hydraulic fracturing (or “fracking”) produced an oil glut that has meant cheap gas for all—and depressed share prices to match.

A Marathon Share Price Decline

As for Marathon’s chapter in the book of energy stocks, you could call it The Great Buy-And-Hold Debacle. While it’s a brilliant investment strategy for a portfolio, and one favored by the likes of billionaire Warren Buffett, buy-and-hold has a downside. Investors stuck with a rotten stock may choose to stay in financial equivalent of a dysfunctional marriage rather than cut their losses and run.

Buffett also said that holding onto cash is the worst investment strategy of them all. So now the terrible, terrible news: If you got in on the ground floor with MRO stock in 1991, you would’ve been better off burying your Benjamins with Rover’s bones in the backyard. To wit: All you’d have to show for close to 30 years of patience is a stock that has lost close to half its value. And that’s before you adjust for inflation.

In the shorter term, MRO tantalized investors with a steady run-up of five-plus years, starting in 2009, that led to an all-time high of $41.69 per share on Aug. 29, 2014. Close to that date, though, energy stocks began to go south. Eighteen months after its peak, MRO stock had lopped off more than 80% of its value.

MRO Stock Befuddles as a Robinhood Fave

As for the experts, most aren’t so enthusiastic about MRO shares, though they’re not dismissive either. Wall Street Journal analyst rankings fall heavily on the hold side, where 17 have cast their lot compared to six calling MRO a buy and three a sell. Consensus on the stock has been hold, in fact, for at least the last three months.

Assuming you want to hit the reset button on Marathon’s financials to begin on March 9, right about the time Covid-19 began to sweep the U.S., then MRO stock is up more than a third and currently trades just shy of $5 a share. So as it’s still on the lower end of low, there’s a case to be made for buying in now while the stock is cheap. But not much of one.

As has been the case with Hertz (NYSE:HTZ), Workhorse Group (NASDAQ:WKHS) and JC Penney (OTCMKTS:JCPNQ), we can attribute Marathon’s mini-rally to the amateur investors who use Robinhood. Just 10,000 Robinhood users held MRO in the first week of March; by mid-August, the numbers had spiraled upwards of 187,000.

The Well Has Run Dry

From where I sit, that’s six digits worth of irrational exuberance. As for a more relevant number to the smart investor, let’s look at Marathon’s profit. There’s isn’t any. Even Wall Street projections reflect the lowest of expectations, as a Q3 earnings beat would mean a loss of less than 20 cents per share.

Now we’re inching into dangerous territory for serious investors. To review, a) MRO is a buy-and-hold loser; b) the energy sector has been a rut for years; c) that rut shows no signs of reversing anytime soon; and d) the stock’s recent run-up, humble as it is, looks strongly connected to the herd mentality of Robinhood traders.

That’s not to say that a short play on Marathon could never reap a benefit. But I’d argue that’s definite market timing territory. You’d need to get in and out at just the right time, while selecting a very subjective, I’ve-got-a-hunch price target.

The analysts say hold. If you go a step further and just hold on to your cash—as rotten a strategy as that is, right?—you’d still come out, to quote a certain oil company’s slogan, best in the long run.

On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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