With the pandemic receding, interest rates near record lows and governments introducing multi-trillion fiscal stimulus around the globe, it shouldn’t be a long wait for the oil industry outlook to improve, suggests Mark Skousen in his specialty service, Home Run Trader.
So, let’s use the recent price weakness to pick up some shares of Continental Resources (CLR). Based in Oklahoma City, Continental is one of the nation’s top 10 independent oil producers.
It is the largest leaseholder and producer in the country’s premier oil field, the Bakken Shale Play of North Dakota and Montana. It also has significant holdings in the South Central Oklahoma Oil Province (or SCOOP).
The company specializes in using advanced technologies to find and produce oil and gas. In particular, fracking and horizontal drilling give the company access to resource plays that were not previously economically profitable.
Continental has over 1.6 billion barrels of proven and probable reserves. However, due to the pandemic and economic contraction — and the consequent drop in energy prices — Continental was not profitable last year.
But this year, the U.S. economy is likely to expand by six to seven percent, the strongest growth in three decades. I expect Continental to earn approximately $2.60 a share this year and more than $3.75 a share in 2022.
Someone who apparently agrees is Continental founder and Chairman of the Board Harold Hamm. One of the nation’s wealthiest individuals, Hamm has a current net worth of $11.6 billion. Much of it is in Continental. And lately, he has been buying more of his company’s shares.
Securities and Exchange Commission (SEC) filings show that he recently purchased 346,486 shares at up to $36.48 a share, an investment of $12.6 million. Indeed, Hamm owns over 80% of the outstanding shares.
Nobody knows this company and the industry outlook better than Hamm does. He has many decades of experience and access to plenty of material, nonpublic information about the firm. He knows that Continental is undervalued at less than two times book value and only 16 times trailing earnings.
And the weakness in oil prices, the stock market and energy stocks in particular has given us an excellent entry point. So, pick up Continental Resources and place a sell stop at $24 for protection.
