Marathon Oil Stock To Continue Trending Downward

by Trefis Team
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The shares of Marathon Oil (NYSE: MRO) have been trending downward due to a sharp drop in benchmark prices triggered by newly imposed restrictions in Europe and concerns regarding vaccination safety. The company explores and produces crude oil, condensate, and natural gas in the U.S. and certain international locations. Due to the pandemic, the company’s revenues observed a 40% (y-o-y) contraction and a net loss of $1.4 billion in 2020. Broadly, EIA expects the WTI benchmark to average around $60/bbl in 2021, negatively affecting revenues and margins of upstream companies. While OPEC’s supply-side constraints have supported benchmark prices, demand-related factors have again become a concern. Given the correction in benchmark prices, Trefis believes that Marathon Oil stock will continue to underperform broader markets.

But how would Marathon Oil’s stock returns change if you are interested in holding it for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Marathon Oil stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF MRO stock moved by -5% over five trading days, THEN over the next twenty-one trading days, MRO stock moves an average of -0.2 percent, which implies an excess return of  -0.8 percent compared to the S&P500.

More importantly, there is 50% probability of a positive return over the next twenty-one trading days and 44% probability of a positive excess return after a -5% change over five trading days.

Some Fun Scenarios, FAQs & Making Sense of Marathon Oil Stock Movements:

Question 1: Is the average return for Marathon Oil stock higher after a drop?

Answer:

Consider two situations,

Case 1: Marathon Oil stock drops by -5% or more in a week

Case 2: Marathon Oil stock rises by 5% or more in a week

Is the average return for Marathon Oil stock higher over the subsequent month after Case 1 or Case 2?

MRO stock fares better after Case 2, with an average return of -0.1% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 3.4% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Marathon Oil stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Marathon Oil stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For MRO stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Marathon Oil after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although MRO stock appears to be an exception to this general observation.

MRO’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Marathon Oil stock by changing the inputs in the charts above.

With MRO stock a risky bet due to a third coronavirus wave in Europe, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Magellan Midstream Partners vs. Coca-Cola shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

See all Trefis Price Estimates and Download Trefis Data here

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