Month after month in the second half of 2020, owners of Marathon Oil (NYSE:MRO) shares watched helplessly as MRO stock struggled to get off the ground. Plus, the lack of dividend payments certainly didn’t help shareholders feel any better.
However, something told me that things could only get better for MRO. So, on Nov. 10, I issued a bullish call on the stock when it was trading at $5. My main argument? Marathon was a severely beaten-down name that contrarians should consider.
A couple of weeks later, the MRO stock price settled at $6.43 on Nov. 25. Call it luck, but that’s a pretty decent gain. And if you’ve just made money on Marathon, there’s nothing wrong with taking profits now.
That said, today I’m doubling down on my bullish call for this company. Yes, Marathon Oil did post four consecutive quarters of earnings losses. But even with that, there are still many ways that the glass is half full for this company.
A Closer Look at MRO Stock
Admittedly, the bears controlled the price action of MRO stock for most of 2020. Getting the share price back to January’s 52-week high of $14.07 now seems like a dream. But is it really that impossible?
The bulls won’t get the stock back to $14 this year, but 2021 offers new possibilities. Besides, November has been a terrific month for shares. The stock started the month at $4 and only went up from there.
Now, the skeptics will correctly point out that MRO stock has trailing 12-month earnings per share of -$1.27. For a stock that’s trading at almost $6 now, that’s not an encouraging figure.
However, Marathon isn’t the only shale-oil producer with negative earnings stats this year. Investors will have to accept that the energy sector fared poorly in 2020, but that a turnaround might be in the offing.
A Timely Call
On Nov. 12, InvestorPlace contributor Mark Hake made a bold call. He told readers to get in on MRO stock before oil prices rise.
Hake’s timing was uncanny, as the price of a barrel of West Texas Intermediate (WTI) oil then increased by several dollars over the following days. As of Nov. 30, oil was priced at $45.34 per barrel. That’s the kind of price we haven’t seen since March.
It’s not a perfect correlation, but in general, MRO stock tends to follow the oil price. As such, we can observe that the share price for Marathon moved up in tandem with oil in November.
The cause of this, it seems, is renewed hope that an effective novel coronavirus vaccine will soon be available to the public.
As you are probably aware of by now, Pfizer (NYSE:PFE) recently announced the discovery of a 95% effective Covid-19 vaccine. Separately, Moderna (NASDAQ:MRNA) declared that its candidate is 94.5% effective.
Not All Bad
It’s reasonable to believe that by the middle of next year, one or more drugmakers will have a novel coronavirus vaccine available to the public. In anticipation of this, it’s likely that the trading community will foresee an ease of lockdowns, a pick up in travel activity and, as result, higher oil prices.
Naturally, that increase in oil prices is bullish for MRO stock.
Now, the bears might object at this point because Marathon’s financials haven’t been ideal. And I’ll concede that — four consecutive quarterly earnings losses certainly don’t bode well.
However, a spike in the oil price could help right the ship for the company in the coming quarters. Besides, the most recent quarterly report wasn’t all bad.
In particular, Marathon Oil chairman, president and CEO Lee Tillman pointed out the following:
“[The] third quarter represented an inflection point in what has been a transitional year, highlighted by $180 million of free cash flow generation on strong execution across all elements of our business.”
Bottom Line
Marathon Oil’s capital position is far from perfect, but it’s not irredeemable. At the very least, we can say that the company will likely have enough cash on hand to stay afloat in 2021.
Moreover, hopes for a Covid-19 vaccine could continue to catalyze higher prices in MRO stock. Therefore, I still recommend a moderately sized long position in shares.
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.
