Is Continental Resources, Inc. (CLR) a Good Stock To Buy?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Continental Resources, Inc. (NYSE:CLR).

Overall, Continental Resources, Inc. (NYSE:CLR) shares haven’t seen a lot of action during the third quarter. The hedge fund sentiment was unchanged and the stock was in 44 hedge funds’ portfolios at the end of September. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Mead Johnson Nutrition CO (NYSE:MJN), Marriott International Inc (NYSE:MAR), and ORIX Corporation (ADR) (NYSE:IX) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

huyangshu/Shutterstock.com

With all of this in mind, we’re going to take a peek at the latest action surrounding Continental Resources, Inc. (NYSE:CLR).

Hedge fund activity in Continental Resources, Inc. (NYSE:CLR)

As stated earlier, heading into the fourth quarter of 2016, 44 funds tracked by Insider Monkey were long Continental Resources, unchanged over the quarter. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in Continental Resources, Inc. (NYSE:CLR), worth close to $98.7 million, amounting to 0.1% of its total 13F portfolio. Coming in second is John Labanowski’s Brenham Capital Management, with a $72.7 million position; 8.6% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish contain Robert Polak’s Anchor Bolt Capital, Clint Carlson’s Carlson Capital and Kevin D. Eng’s Columbus Hill Capital Management.

Because Continental Resources, Inc. (NYSE:CLR) has experienced falling interest from hedge fund managers, it’s safe to say that there is a sect of hedge funds that slashed their entire stakes in the third quarter. Interestingly, Marc Lisker, Glenn Fuhrman and John Phelan’s MSDC Management sold off the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling about $19.7 million in stock. Kenneth Tropin’s fund, Graham Capital Management, also dumped its stock, about $17.9 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Continental Resources, Inc. (NYSE:CLR). We will take a look at Mead Johnson Nutrition CO (NYSE:MJN), Marriott International Inc (NYSE:MAR), ORIX Corporation (ADR) (NYSE:IX), and Stanley Black & Decker, Inc. (NYSE:SWK). This group of stocks’ market caps are similar to CLR’s market cap.

As you can see these stocks had an average of 29 funds with bullish positions and the average amount invested in these stocks was $986 million. That figure was $712 million in CLR’s case. Marriott International Inc (NYSE:MAR) is the most popular stock in this table with 48 investors holding shares. On the other hand, ORIX Corporation (ADR) (NYSE:IX) is the least popular one with only six bullish hedge fund positions. Continental Resources, Inc. (NYSE:CLR) is not the most popular stock in this group, but the hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MAR might be a better candidate to consider a long position.