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Stock Strategist

One of the World's Best Oil Companies Now on Sale

Concerns about finances and pricing differentials are unlikely to derail the Continental Resources story.

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With most oil-focused exploration and production companies trading at prices that aren't particularly attractive,  Continental Resources (CLR) stands out as a low-cost producer with a compelling valuation. There are reasons the stock is cheap, including the fact that Continental is completely unhedged in a very uncertain period for oil markets. Further, the company faces above-average basis differential risk because most of its oil production comes from North Dakota, where prices are regularly lower than in the rest of the United States.

But neither of these concerns is likely to derail the Continental story. The company's financial health is unlikely to be an issue, given the recent uptick in oil prices. Furthermore, its Williston Basin acreage is profitable enough that Continental can generate strong returns even if differentials remain as wide as they are currently (and we don't anticipate that they will). Taken together, near-term concerns are creating an attractive opportunity in a top-tier oil company. Continental currently trades 27% below our $64 fair value estimate and is our top pick among our oil-focused E&P coverage.

Dave Meats does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.