This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Stop Dumping on Chesapeake Energy

At the time, it seemed a bit aggressive. However, looking at the results it appears not only did the company have the right idea, but it might have been a bit underestimated. So while the company's management has been under a considerable amount of scrutiny for some poor decisions, in this case it deserves some credit for having anticipated the problem in order to lessen its impact.

But it has not stopped there. The company has been doing a more than an adequate job to help mitigate the situation, an example being investing in oil fields in an attempt to increase crude production, as well as diversifying its offerings.

Renewable Energy?

The earnings results as well as its outlook demonstrated that Chesapeake has not lost its focus. The fact of the matter is, as dire as the situation appears today Chesapeake is in a business that presents a critical need and costs will eventually normalize.

Though the numbers were not great, they were certainly far from horrible, all things considered. It is clear the company is working to maintain its status as one of the country's top natural gas producers.

To that end, Chesapeake plans to deliver an average output of 250,000 barrels per day, representing an increase of 70% above its 2011 output. It has begun to do that by investing heavily for the development of its holdings in Mississippi Lime, Granite Wash as well as Eagle Ford Shale.

While there is short-term volatility, the natural gas industry and in particular stocks such as Chesapeake will continue to be important players on the market. Investors would be wise to become greedy on this weakness as Chesapeake may prove to be an excellent recovery play.

Bottom Line

As it stands, the stock is down almost 50% from its 52-week high of $35.75. It is unlikely that its fundamentals have changed that drastically to justify this level of punishment. Instead, investors have been driven by fear.

To top it all off, in terms of profitability, Chesapeake offers both higher profits and operating margins than most of its peers that carries much higher multiples.

Patient investors should consider giving Chesapeake a long look at current levels as there is an opportunity for at least gains of 20% in the next six months, reaching my fair market value of $22.

At the time of publication, the author help no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CHK $4.59 -19.61%
AAPL $92.72 -0.56%
FB $119.49 1.43%
GOOG $711.12 1.38%
TSLA $214.93 1.61%


Chart of I:DJI
DOW 17,740.63 +79.92 0.45%
S&P 500 2,057.14 +6.51 0.32%
NASDAQ 4,736.1550 +19.0610 0.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs