Oddly Popular Marathon Oil Stock Presents a Grim Picture

If there’s one good thing we can say about shale producer Marathon Oil (NYSE:MRO), it’s that the company’s hasn’t filed for Chapter 11 bankruptcy protection. That’s all fine and good, but it’s not a sufficient reason to own MRO stock.

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

For years, MRO stock didn’t generate much buzz among market participants and social media pundits. However, many unprecedented phenomena are taking place in 2020. Suffice it to say that this isn’t your parents’ or your grandparents’ stock market.

A new generation of amateur stock traders, many of them using the fee-free platform Robinhood, have been trading some highly questionable assets lately. These include Hertz (NYSE:HTZ) and JC Penney (OTCMKTS:JCPNQ), which are part of what I like to call the “bankruptcy trade.”

I would also include Luckin Coffee (OTCMKTS:LKNCY) in the mix as the company is in trouble even if it’s not (yet) going bankrupt. These are all stocks that the Robinhood crowd has latched on to in 2020. Almost inexplicably, MRO stock can now be added to the list of suddenly popular stocks. What’s going on here, and is MRO worth owning now?

A Closer Look at MRO Stock

Among American petroleum companies, investors should expect more from Marathon. Take Exxon Mobil (NYSE:XOM) as an example. People are freaking out because Exxon Mobil is getting kicked out of the Dow Jones Industrial Average.

Yet, XOM stock offers an annual forward dividend yield of 8.76%. This means that the stock price could decline nearly 9% over the next year and, assuming there are no dividend yield cuts, investors might still break even.

Moreover, XOM stock’s trailing 12-month price-earnings ratio is a fairly reasonable 24.23. In contrast, MRO stock doesn’t even have a trailing 12-month P/E because the company’s earnings per share are negative.

Plus, there are no earnings to speak of when it comes to MRO stock. Prospective investors should also observe that the MRO share price has been in a state of decline since September 2018.

The Crowd Gathers

Nevertheless, the average daily trading volume on MRO stock has increased in 2020 compared to recent years. In fact, it’s close to 30 million shares traded on a typical day.

Given the company’s anemic financials, it’s not likely that institutional investors are jumping on the bandwagon here. Who’s trading MRO stock, then?

Undoubtedly, it’s the retail crowd that we should be looking at. The number of Robinhood users holding MRO stock provides a key insight in this case.

Throughout 2019 and during 2020’s first couple of months, roughly 6,000 to 10,000 Robinhood users held MRO stock. Then, at around the same time that the Covid-19 crisis occurred in the United States, the number of Robinhood users holding MRO shares skyrocketed:

  • 65,877 Robinhood users held MRO stock on March 27.
  • 173,287 users held the stock on May 2.
  • 206,877 users held shares on June 22.

Not a Popularity Contest

That number leveled off to around 187,000 users by mid-August, but the numbers are still astonishing. Bear in mind that Marathon Oil posted a net loss of $750 million during the second quarter. That translates to a net loss of 95 cents per diluted share, which isn’t a great result when the stock is in the $5 or $6 area.

In case you haven’t figured it out by now, I’m not recommending MRO stock as an investment. The company’s not earnings-positive yet, so it’s best to sit on the sidelines for the time being.

The stock market isn’t a popularity contest. If anything, an extreme uptick in ownership among amateur traders could be construed as a sell signal for sophisticated investors.

And if we’re attempting to account for the stock’s sudden popularity among Robinhood users, it’s probably because MRO shares are cheap and Marathon Petroleum resembles Whiting Petroleum, another popular name with this demographic.

The Bottom Line

I’m not recommending taking a short position with MRO stock just because many Robinhood users own it. Instead, just keep an eye on the company and wait until its fiscal position is more favorable.

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

David Moadel has provided compelling content and crossed the occasional line on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

Article printed from InvestorPlace Media, https://investorplace.com/2020/09/oddly-popular-mro-stock-presents-a-grim-picture/.

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