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Delivering Alpha: Where Fund Managers Are Placing Their Bets

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Part 4
Delivering Alpha: Where Fund Managers Are Placing Their Bets PART 4 OF 6

Why Jim Chanos Is Short on Continental Resources

Jim Chanos at the Delivering Alpha Conference

The founder and managing partner of Kynikos Associates, Jim Chanos, shared his views on certain stocks at the Delivering Alpha Conference in 2017. He is best known in the market (QQQ) (SPY) for his short-selling strategy. He said that he has a short position in Continental Resources (CLR).

Why Jim Chanos Is Short on Continental Resources

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Short-selling opportunity in the bull market environment

Although the market is showing strong movement, Jim Chanos believes that there are still some opportunities that will provide strong returns if investors use the short-selling strategy.

Jim Chanos on Continental Resources

Continental Resources is a major crude oil (USO) and natural gas (UNG) exploration and production company in the United States (SPY). In the past year, major oil and gas exploration companies faced major issues repaying their debt due to the continuous fall in oil prices in early 2016. The fall in oil prices also narrowed their profit margin and brought huge losses for some companies.

Jim Chanos is doubtful about Continental Resources’ ability to repay debt in the near future. He said, “We are short CLR. People have been looking at the industry with rose colored glasses. This is a problem with the North American shale business. If we don’t get a big pickup in the company’s fortunes in the back half of the year, it’s going to struggle.”

He is worried about CLR’s business model. He also said, “unlike other businesses your assets literally get burned up. Most of the dollars that come out of the ground have to go right back to pay your creditors.”

Performance of Continental Resources

Continental Resources has been weak so far this year. On a year-to-date basis, the stock dropped nearly -30.7% as of September 15, 2017. In the past year, the stock dropped nearly 21.6%. The Energy Select Sector SPDR ETF (XLE), which tracks the performance of the energy sector, fell nearly 2.6% over the past year.

In the next part of this series, we’ll analyze Jim Chanos’s view on Tesla.

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