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Turnaround Letter
Out-of-Favor Stocks with Real Value

June 6, 2022

We are moving shares of Marathon Oil (MRO) from Buy to Sell.

We are moving shares of Marathon Oil (MRO) from Buy to Sell.

We are reluctant to sell Marathon, as the company’s cash generating power remains incredibly strong. The shares are not expensive but are no longer the bargain they once were. Oil prices remain elevated toward the high end of reasonable. Even though Russian oil may be cut off, we are well aware of the ability and perhaps the newfound willingness of the Saudi government to open its oil taps just a bit.

The bane of being a contrarian and a value investor is that we sometimes sell too early. But we also recall the admonition of Nathan Rothschild, the incredibly wealthy financier from a few centuries ago, who, when asked how he got so rich, replied, “I always sell too soon.”

We are a captive of our rating system, which is basically binary – either Buy or Sell. Today’s call is not a “sell it all today” call, but rather a recommendation to start trimming out. From a tactical perspective, investors holding MRO shares may want to initially reduce any outsized positions, then gradually chip away at the remaining balance over perhaps weeks. We see nothing wrong with keeping a stub position for an extended period. This both captures much of the strong profits but also allows some participation should the shares continue to ride higher.

From our initial recommendation in September 2021, the MRO investment has produced a 166% total return.