Continental Resources (CLR): Leader in the newly strong energy group

By Michael Cintolo, Chief Analyst, Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 10/10/13 Sign up for free Cabot Wealth Advisory

After a relatively smooth ride from the late-June market low, many growth stocks have come under pressure in recent days. On a long-term basis, I don’t consider this abnormal yet, but short- to intermediate-term, I’m less sanguine. I’m not predicting anything, but it only makes sense to expect some potholes given the prior big advance, as well as the uncertainties in Washington.

That said, there are still many stocks acting well, and when buying, I’m focused on names that have recently emerged (say, since the start of September) from multi-week (or multi-month) consolidations. Indeed, many of these “fresher” stocks are holding up very well, while the big leaders of the past three months are encountering some selling.

One name that fills the bill is Continental Resources (CLR), a leader in the newly strong energy group. The story isn’t complicated, as the firm is the largest leaseholder in the oil- and natural gas-rich Bakken shale region of the western U.S. and Canada with 1.2 million acres. And it’s drilling like mad; production is expected to rise 40% this year, and management is targeting growth of nearly 30% in 2014, with more to come after that. The company also has a new, exciting play in Oklahoma, which is small, but initial wells have been excellent (second quarter production tripled from a year ago in this area). Analysts see earnings up 64% this year and 31% in 2014.

Just as important, CLR (along with many energy explorers) recently popped out of a huge basing area on big volume. CLR topped out back in early 2012 and spent the next year and a half correcting and consolidating. But it finally broke loose from that range in early September, and has rallied from 100 to 115 since. This week’s pullback has only brought shares down to their 25-day moving average before finding support.

While CLR isn’t likely to double or triple from here, I think it’s an emerging blue chip in the energy sector, and coming off such a huge rest period, the path of least resistance is now up. It looks buyable around here, but I advise a stop near 100 in case the market develops the flu.