Today’s news:
• Small-Cap Stocks
• Marathon Petroleum (MPC) issues a financial report.
• Chart Industries (GTLS) reports first quarter results.
Market Commentary and Small-Cap Stocks — I remain cautious on U.S. stocks in the coming days. I find it disturbing that the stock market barely reacted to the oil price crash, and more importantly, the energy downturn’s broader implications. In contrast to what I consider to be a dire economic forecast, stocks are acting well.
Given the market’s somewhat bullish mood, here’s where nimble investors can take advantage of upward momentum. Small-cap stocks began looking like they were ready to surge as I reviewed them last Friday. They appear even more ripe today, with some of them proceeding to break out. Case in point: Chart Industries (GTLS), which reported earnings this morning, rose 11%, and is featured below.
If you are walking a fine line, as I am, between trading the current market but also being cautious with an eye on economic realities, keep your cash position a little higher than usual, as you would if you anticipated a market decline. In that way, a sudden downturn in the market can present you with buying opportunities, and you’ll have the cash available to take advantage.
And by the way, Zoom (ZM) appears to be breaking out again, commencing a new run-up. I’m not recommending the stock, but growth stock traders should pay attention.
Marathon Petroleum (MPC — yield 9.0%) filed a report with the Securities & Exchange Commission yesterday, with reference to severe business disruptions caused by the quarantine behaviors associated with the COVID-19 pandemic. The report states “the adverse impact of the economic effects on MPC has been and will likely continue to be significant. The decrease in the demand for refined petroleum products coupled with the decline in the price of crude oil has resulted in a significant decrease in the price of the refined petroleum products we produce and sell.”
The report itemizes actions in the areas of deferred/delayed capital expenditures, reduced operating expenses, deferred tax payments, increased debt via their revolving credit facility and a current cessation of share repurchases. Marathon will take a $7.8 billion writedown, and the first quarter will produce an approximate $250 million loss. The company projects first quarter revenue between $24.1 - $26.7 billion, while the recent consensus estimate was $24.8 billion.
The market is reacting well to Marathon’s report. I know that it may seem counterintuitive that a negative report could cause a stock to rise, but look at it this way: the market already knew that energy companies are suffering from the global economic lockdown. The unquantifiable worries can put pressure on share prices. However, once numbers are quantified – presuming that they are not disastrous – the pressure is off, and buyers can relax and add to their positions in favored energy stocks.
In that light, MPC appears ready for an immediate run-up. I’m keeping our portfolio stocks “on lockdown” – pun intended – with Hold recommendations. However, if you love MPC and/or you love trading momentum, go ahead and buy MPC today. Hold.
Chart Industries (GTLS) reported a strong, profitable first quarter. The company benefited from selling medical oxygen critical care products to assist in abating the COVID-19 pandemic. Chart continues to increase gross margins and pay down debt. Year-to-date actions are expected to result in $48.8 million of annualized cost savings.
The company was featured in Cabot’s 10 Best Stocks to Buy and Hold for 2020. Chart Industries is a leading independent global manufacturer of highly engineered equipment serving multiple market applications in energy and industrial gas. The company is actively growing its global presence and revenue with operations in the U.S., Europe, Asia, Australia and Latin America. Chart is focused on business expansion and efficiency, people and safety, cutting wasteful costs and making acquisitions that enhance current operations. Chart has no direct peers, offering turnkey solutions with a much more broad set of product offerings than other industry participants.
GTLS is a small-cap stock with significant institutional ownership. GTLS rose 11% this morning in reaction to the earnings report. The stock appears to be ready for an immediate breakout, after trading quietly sideways for five weeks.