In a year when the novel coronavirus pandemic has battered fossil fuel demand, you’ll have a tough time finding anyone willing to defend Marathon Oil (NYSE:MRO). In 2020, the price action in Marathon Oil stock has been so bearish that many traders prefer to avoid it altogether.
In fact, not long ago, Louis Navellier and the InvestorPlace research staff wrote an incisive article detailing the bearish thesis against owning Marathon Oil stock. I highly recommend reading it.
Today, though, I’ll sit on the other side of the fence and present an argument in favor of buying the stock. However, I won’t paint an entirely rosy picture. There will be plenty of cautionary notes here.
Is it crazy — and possibly politically incorrect — to defend a fossil-fuel dinosaur like Marathon Oil in 2020? Probably. Still, perhaps we can find something positive to say about this troubled Texan energy explorer.
A Closer Look at Marathon Oil Stock
Needless to say, Covid-19 hasn’t been kind to Marathon Oil stock holders. At the start of 2020, shares were sitting comfortably at around $13. As we now know, though, a terrifying decline soon ensued.
Thankfully, the company bottomed out at $3.02 in early April. Since then, the share price has managed to stay above $4 for the most part. Heck, there was even a rapid spike above $8 in June.
It’s comforting to look back and observe that the stock stabilized at the $4 mark throughout October. Could this be a sign that the worst is over for the shareholders?
Unfortunately, there’s no way to guarantee that the stability will persist for Marathon Oil stock. During a time when Covid-19 remains a major issue — as well as the contentious, contested election outcome — shareholders in Marathon need to stay vigilant and always be ready to adjust their positions.
Less Debt, and the Dividend Is Back
With an embattled company like Marathon Oil, the bulls must celebrate whatever good news comes their way. Investors will be glad to know, then, that the company offered two nice little nuggets of positive news not long ago.
First, yield seekers will appreciate the fact that Marathon Oil reinstated its dividend. For the common stock, it will be 3 cents per share. While you probably won’t get rich off of that dividend, it’s still a start. And if the company can afford to reward the shareholders with a dividend — albeit 3 cents a share — that in itself is a good sign.
The second good news is this: along with the dividend reinstatement, Marathon Oil announced a $100 million gross debt reduction. Commenting on these positive developments, CEO Lee Tillman called them “evidence of our progress and our forward confidence.” Tillman also said, “Maintaining a strong balance sheet and returning capital to shareholders are core elements of our value proposition.”
Not Great, But Better Than Expected
Just recently, the company revealed its fiscal data for the third quarter. Now, don’t get your hopes up — the results are not fantastic. But in terms of revenue, things were not nearly as bad as anticipated.
For the quarter, Marathon Oil posted revenues of $754 million. The Wall Street analysts were generally preparing for $752 million. It’s not a huge beat, but the bulls have to take what they can get.
Furthermore, the company’s CEO highlighted the bright side of a challenging quarter. Specifically, Tillman emphasized that Marathon Oil had “$180 million of free cash flow generation.”
If this focus on debt reduction and cash flow generation continues, 2021 could be a turnaround year for the company and its stakeholders. That means there’s a little hope for Marathon Oil stock.
Bottom Line
It wasn’t easy, but I presented a glass-half-full view for shareholders of this company.
As long as you understand the risks and keep your position size small, you can find reasons — if you look hard enough — to own Marathon Oil stock with confidence.
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.
