Low oil prices and the coronavirus have crushed the energy sector of the stock market.
Since reaching a high on Feb. 12, 2020, the S&P 500 energy sector index — which tracks all big energy stocks — has dropped more than 34%.
It’s forced big energy companies to consolidate. They’re hacking expenses to save profits.
On Monday, big fuel maker Marathon Petroleum Corp. (NYSE: MPC) announced it was selling all 3,900 of its Speedway gas stations to 7-Eleven Inc. parent company Seven & I Holdings Co. for $21 billion in cash.
Fun fact: Marathon Petroleum was originally a wholly owned subsidiary of Marathon Oil Corp. (NYSE: MRO) until it spun off in 2011.
The sale shows just what kind of pressure big oil companies are under to protect their bottom lines.
And it leaves investors like you and me wondering if these consolidation efforts are enough to make big companies like Marathon Petroleum winners.
We often hear “buy low; sell high” — and energy stocks are trading at lows today.
But we don’t buy just because the stock price is low.
First, let’s look at how Marathon Petroleum stock ranks using Money & Markets Chief Investment Strategist Adam O’Dell’s stock rating system.
How Marathon Petroleum Stock Ranks
Let’s be clear: Oil-related stocks don’t rank high in a lot of categories. They are big, volatile and don’t grow that much.
Marathon ranks an 18 overall on Adam’s system. However, it scores the highest on value and quality. Its lowest marks come in size and volatility — which is to be expected with oil companies, especially with the price of oil projected to hover around $40 a barrel.
For context, oil was as high as $164 a barrel in May 2008.
Let’s dig deeper into Marathon Petroleum:
- Value — Marathon ranks a 58 on value. Its price to sales ranks an 88 — only 12% of all other stocks are better. It also earns a high rank in price to book (74).
- Quality — The company gets a 66 in overall quality. That’s due in large part to its stock efficiency (88) and its cash flow (86).
- Growth — Marathon earns an overall rank of 38 in growth. Its earnings per share ranks a 31 — 69% of all other stocks rank higher. Marathon earns a solid 74 on sales but only a 19 on net income.
- Momentum — MPC earns a ranking of 30 in momentum. 70% of all stocks score better in this factor. A lot of that can be attributed to the volatility in the oil market.
- Size — Marathon gets hammered in this factor. With a market cap of $25 billion, it rates a .05 — it’s bigger than 99% of all other stocks. Smaller is usually better when it comes to investing because Adam knows there is a better chance at larger gains with smaller companies.
- Volatility — The coronavirus and the oil market have not been kind to Marathon when it comes to volatility. It ranks a 22. Marathon’s share price 52-week high is $64. Its 52-week low is $37 — a 42% fluctuation in price.
Marathon Isn’t a Winner … Yet
Investors aren’t wrong to be scared of Marathon’s stock.
Low rankings in growth, momentum, size and volatility don’t paint a pretty picture — making Marathon Petroleum a loser … for now.
But (and there’s always a “but”) the company is trying to lower its costs by selling off its 3,900 Speedway gas stations for $21 billion.
That should help put Marathon Petroleum on better financial footing in the future … and potentially make it a more inviting stock to buy.
However, for now, the numbers say Marathon Petroleum stock is one to stay away from.