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Why You Should Be Greedy for Chesapeake

NEW YORK (TheStreet) -- Warren Buffett once said, "When a management team with a reputation for brilliance tackles a business with a reputation for poor economics, it is the reputation of the business that remains intact." Sometimes, though, we are asked to judge the inverse case: a sound business under poor management. What part of its reputation survives?

Such is the case for natural gas and oil company Chesapeake Energy (CHK - Get Report) and its embattled CEO, Aubrey McClendon. As "questionable" as McClendon's recent decision-making has been, the fundamentals of the company remain solid.

What does that mean for Chesapeake as an investment? Of late, Chesapeake has been in the news for all of the wrong reasons -- not the least of which is the fact that McClendon has been alleged to have obtained loans and interests on the company's wells.

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While it would appear the CEO demonstrated confidence in the company's assets, to many shareholders it presented some causes for concern or more specifically, some potential conflicts of interests.

As a result, the stock has recently gotten punished, as it seems investors have lost confidence in management. But then again, this might be a case of overreaction, similar to the experience several years ago of Ford (F) or better yet, Bank of America (BAC). Today both companies are solid, and in particular Bank of America has regained its status as one of the top financial institutions on the market, reemerging stronger amid all of the turmoil regarding the housing crisis.

Warren Buffett also said, "Be greedy while others are fearful." With that in mind, I was looking to the Chesapeake's earnings report to affirm which should prevail: the market's current fear or greed?

The Quarter That Was

For the quarter, Chesapeake reported a net loss of $71 million or 11 cents a share. The loss was a disappointment because it came after an increase of 50% in revenue for the first quarter, $2.5 billion, but short of analysts' estimates of $2.75 billion. Adjusted earnings were 18 cents a share and missing Street estimates of 29 cents. On the bright side Chesapeake was able to increase daily production to 3.658 billion cubic feet equivalent or by 18%.
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