If COVID has solidified one thing, it is that playing the market must be democratic. And as always in a democracy, people get what they deserve: It means we see lots of amateur investors pouring into the market, skewing emotions away from the basics. A lot of it goes down for free Robin Hood trading app, whose median user age is 31, but with college kids increasingly jumping on board. And whether they know anything about oil – or even markets in general – they have decided that in the case of hydrocarbons, they love Marathon Oil (NYSE: MRO).
On March 9, there were 1
It is a serious crowd gathering.
So, is it just straight up parrot going on here, or is there a method of madness?
Is Marathon really that good? Should it be Robinhood user’s number one oil and gas depot?
Keep in mind that Wall Street is becoming increasingly critical of these amateur investors who are such a force that they have the power to drive the market and make fundamental factors irrelevant – at least temporarily.
They are like a stock trader: fashion over the basics.
They’ve been doing all sorts of counter-moves since the pandemic, including buys lots of stock in bankrupt companies like Hertz and JCPenney and invested in airlines at a time when legendary investors like Warren Buffett were divesting – fast. They even invest in cruise lines during an almost global lockdown.
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Marathons, however, are different. Marathon is not a bankrupt company and is not an open counter game either.
So, what gives, and why is it more popular than, say, ExxonMobil?
The simple – and probably only – answer is that it is a cheap stock, so the 30-something and younger investors can afford it, even though Robinhood now offers fractional stocks. Amateur investors’ reasoning is often this: “I have to diversify my portfolio, which means I have at least one oil and gas inventory, and that’s the only major I can afford.”
It’s as simple as that.
There is also a chance for a more significant upside when a stock starts at such a low price – if oil prices ever start to climb again, it is.
The view from the more advanced trader is quite more nuanced.
First of all, did not release Marathon Oil Earnings report for the second quarter of 2020 until August 6, and when it did, it was a net loss of $ 750 million or $ 0.95 per diluted share. Its adjusted net loss was $ 477 million ($ 0.60 per diluted share). MRO reported a net cash flow of $ 9 million ($ 86 million before changes in working capital). These $ 9 million are a bit short considering that it spent almost $ 140 million on capital projects.
It’s a pretty gloomy picture, but there’s one thing that stands out: Future cash flow for the whole year.
CEO Lee Tillman noted that along with lowering investment guidelines and raising oil production guidance for the full year, “We believe the company is successfully positioned to generate free cash flow at commodity prices well below the current futures curve, while protecting operations in 2021.” .
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“While it is too early to provide a specific business plan, our differentiated capital efficiency is illustrated by a 2021 benchmark maintenance scenario that we believe could deliver the company’s total oil production in line with 4Q20 at a free cash flow break of around $ 35 / bbl.”
In other words, they are positioned for free cash flow generation at commodity prices that are quite a bit lower than they are right now.
If it is actually picked out, the Millennial investor who acquires the Marathon share on Robinhood could end up in a company that is in full swing with cash soon enough.
The company, overall, has also become more efficient and it has suspended dividends. At the same time, Exxon is desperately holding on to its dividend, even in this price environment.
None of this means much at all for novice investors to buy shares in Robinhood, and Wall Street wants to suggest that only those who have the expertise to select a profit report should invest. Or at least they should be in sufficient numbers that they do not drive the market in directions that it has no business to go and create bubbles that will eventually burst.
Perhaps. Once again, investment is now democratic, and Wall Street must adapt to this Robinhood effect.
In the case of Marathon, despite poor quarterly reports (which is the standard anyway), the Robinhood investor can certainly forgive himself for having piled into this stock. After all, it has managed to raise the outlook for oil production for the full year while keeping costs under control and continuing to reduce capital. Wall Street will not really argue on this point.
By Julianne Geiger for Oilprice.com
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