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Buying Continental Resources

Jun. 07, 2020 5:56 AM ETContinental Resources, Inc. (CLR)16 Comments
Leo Nelissen profile picture
Leo Nelissen


  • Continental Resources is well positioned to benefit from higher oil prices, thanks to its low cost structure and decision to refrain from hedging production.
  • The company's balance sheet is strong and current oil prices have significantly eased the pressure on its financials.
  • While the stock is very volatile, I expect a breakout backed by a high short float and the need to catch up with oil after the most recent downtrend.

It's time to discuss one of the few trades I executed over the past few months. As markets have been volatile, I have been looking for great stocks to buy at good prices. The Oklahoma-based E&G giant Continental Resources (NYSE:CLR) is one of these companies. In this article, I will discuss the company's low-cost profile, COVID-19 measures, its balance sheet, and my expectations going forward.

Source: PR Newswire

Tough Times Require Tough Measures

On November 11, 2019, I wrote that Continental Resources was one of the best oil plays working on a bottom. I mentioned rapidly rising production, strong free cash flow, and low breakeven prices. In addition to that, I started mentioning a global growth bottom after the economy had peaked in 2018. All of this turn into a strong bull case as the stock quickly gained more than 14%. Unfortunately, then COVID-19 happened, and we all know how that turned out.

Right now, Continental Resources is down roughly 62% since the start of the year and 12 months ago. As the graph below shows, global oil demand imploded in the first two quarters of 2020 by almost 20%. As a result, the global supply fell as well. Continental Resources shut roughly 70% of its crude output in May in one of the largest production cuts announced among domestic oil producers. EOG Resources (EOG) is curtailing about 25% of production and canceling almost 40% of planned new wells that were expected to go online in 2020.

Source: Seeking Alpha (HFI Research)

Since February, Continental Resources has taken a number of steps as described in its latest May investor update. In February, the company decided not to overproduce into an oversupplied market and reduced its capital spending to levels equal to 2019. Back then, it turned out to be a smart move as

ChartData by YCharts

This article was written by

Leo Nelissen profile picture
Welcome to my Seeking Alpha profile!I'm a buy-side financial markets analyst specializing in dividend opportunities, with a keen focus on major economic developments related to supply chains, infrastructure, and commodities. My articles provide insightful analysis and actionable investment ideas, with a particular emphasis on dividend growth opportunities. I aim to keep you informed of the latest macroeconomic trends and significant market developments through engaging content. Feel free to reach out to me via DMs or find me on Twitter (@Growth_Value_) for more insights.Thank you for visiting my profile!

Analyst’s Disclosure: I am/we are long CLR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This article serves the sole purpose of adding value to the research process. Always take care of your own risk management and asset allocation.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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