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With shares of McMoRan Exploration (NYSE:MMR) trading at around $8.48 is MMR an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
It’s not often that we see a stock move down 30% in one week, but it does happen. One of the most recent victims was McMoRan Exploration. This had everything to do with Davey Jones No. 1, which needed unclogging with a solvent injection. If you look at this situation on the surface, McMoRan has done nothing but make excuses for one problem after another over the past year. Then we had a JPMorgan (NYSE:JPM) analyst say that the stock was worth zero. In addition to that, the company is burning through cash at a rapid rate. These might all be reasons to sell, but let’s look a little deeper.
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In regards to Davey Jones No.1, they know the oil is there, it’s just a matter of getting to it. If you knew there was a substantial amount of gold buried deep in your backyard, would you do everything in your power to get to it, even if it took several years? In regards to the JPMorgan analyst, the stock should be trading lower off that call. It actually shows strength that MMR has buoyed. When it comes to burning through cash, that’s not much of an issue since McMoRan Exploration has attracted some of the biggest investors in the industry. This is also a positive sign for future potential.
Other important points include that most analysts are on the Buy side, there are other projects, and McMoRan Exploration now owns and controls 951 oil and gas leases in the Gulf of Mexico. Based on these facts, it would be difficult to see the stock going to zero.
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