If COVID has one thing in solidarity, it is that playing the market must be democratic. And as always in a democracy, people get what they deserve: that means we see tons of amateur investors in the market, skewing sentiment away from foundations. A large portion of that falls on the fee-free Robinhood trading app, whose age of median users is 31, but with colleges increasingly jumping on board. And whether they already know anything about oil – or even brands in general – they have decided that when it comes to hydrocarbons, they love Marathon Oil (NYSE: MRO).
On March 9, there were 10,078 Robinhood users holding Marathon stock. Within a day, there were 18,564. By June 22, there were 206,877 users holding MRO.
That’s some serious crowd-gathering.
So, is it just straight-up parrots happening here, or is there a method to the madness?
Is Marathon really that great? Would it be the Robinhood user’s number one oil and gas stock?
Consider in the first instance that Wall Street is becoming increasingly critical of these amateur investors who are such a great force that they have the power to drive the market and make foundations irrelevant – at least temporarily.
They are like the catwalk of stock traders: fashion about foundations.
They have made all sorts of counter-movements since the pandemic, including buy tons of share in bankrupt companies like Hertz and JCPenney and betting on airlines at a time when legendary investors like Warren Buffett were running out – fast. They even bet on cruise lines during an almost global lockdown.
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Marathon is different, though. Marathon is not a bankruptcy business, nor is it an open-ended counter-play.
That, 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 that the 30-something and younger investors can afford it, even though Robinhood now offers fractional shares. The reasoning of amateur investors is often this: “I need to diversify my portfolio, which means I keep at least one oil and gas stock, and this is the only size I can afford.”
It’s as simple as that.
There is also an opportunity for a more significant upturn when a stock starts with such a low price – if oil prices ever start to climb again, that is.
The view of the more advanced trader is rather nuanced.
First, Marathon Oil did not release her Q2 2020 revenue report until August 6, and when it did, it was with a net loss of $ 750 million as $ 0.95 per share removed. The adjusted net loss was $ 477 million ($ 0.60 per diluted share). MRO reported a net operating cash flow of $ 9 million ($ 86 million prior to changes in working capital). That $ 9 million is a bit short, considering it spent almost $ 140 million on capital projects.
That’s a pretty grim picture, but there’s one thing that stands out: Future cash flow for the entire year.
CEO Lee Tillman notes that along with reducing capital expenditure guidance and increasing 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 forward curve, while protecting operational momentum in 2021. “
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“While too early to deliver a specific business plan, our differentiated efficiency of capital is illustrated by a 2021 benchmark maintenance scenario that we think total company oil production could deliver in line with 4Q20 at a free cash flow break of about $ 35 / bbl. “
In other words, they are positioned for generating free cash flow at commodity prices that are quite lower than they are right now.
If that actually happens, the Millennial investor tracked down Marathon share on Robinhood could end up keeping a company that is fast enough with cash.
The company in general has also become more efficient and it is raising dividends. Meanwhile, Exxon is desperately holding on to its dividend, even in this price environment.
None of this means anything at all to the novice investor buying shares on Robinhood, and Wall Street would suggest that only those who have the expertise to pull a profit report apart should invest. Or, at the very least, they should be in small enough numbers that they do not drive the market into indications that it does not matter and create bubbles that will eventually burst.
Perhaps. Once again, however, investing is now democratic, and Wall Street will have to adapt to this Robinhood effect.
When it comes to Marathon, despite poor quarterly reports (which is really the norm today), the Robinhood investor can certainly be forgiven for stacking in this stock. After all, it has managed to increase its outlook on year-round oil production at the same time, as it keeps costs under control and continues to reduce capex. Wall Street will not really argue at this point.
By Julianne Geiger for Oilprice.com
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