Chesapeake Energy: When Does the Stock Become a Buy?

NEW YORK ( TheStreet) -- I'm not the biggest fan of crowd-sourcing as a means of reaching stock investing decisions, but I do think in the case of controversial U.S. oil and gas company Chesapeake Energy ( CHK), it's worth putting the simply question to investors: Does this stock deserve a look after its recent slide?

Shares of Chesapeake are down 20% year-to-date, trading at a share price the company hasn't visited since the financial crisis. Sub-$2 natural gas is part of the story, but the company's balance sheet issues and the lightning rod represented by CEO Aubrey McClendon have also helped to push - and keep - shares in the penalty box.

The most categorical way to answer this question in the negative -- while still finding a basis for investment -- is to argue, as RealMoney columnist Dan Dicker did this week, that there are plenty of other natural gas stocks beaten down to bottom out share values because of the sub-$2 natural gas pricing environment that don't have the baggage of Chesapeake .

For example, do you trust McClendon to right the ship at Chesapeake or would you prefer to bank on distressed investing specialist Wilbur Ross to generate value for shareholders of Exco Resources ( XCO)? If you are a big believer in the natural gas renaissance long-term and are a patient investor, why not place a wager on Ultra Petroleum ( UPL)?

In the past, McClendon has at least made Chesapeake into a great stock for trading on M&A headlines. But that old magic trick hasn't worked out so well of late.

In fact, on the same day that Reuters recently reported on the personal loans that McClendon has tied to holdings in Chesapeake wells, McClendon was telling an industry conference that the company's big sale of its Permian assets should be completed in the third quarter, but that headline was buried by the negativity surrounding the stock.

The company says the board and its shareholders have long approved the program through which McClendon invests in Chesapeake wells -- wells he has tied personal loans to -- and that the personal loans are no business for the company or board to review.

Frankly, it's no surprise that a board that many think is in the back pocket of the CEO would approve this plan year in, year out.

But the company's rationale can't explain away a very basic conflict: If the CEO's personal loans are tied to company wells, how can any shareholder ever be sure a decision to sell company properties won't be conflicted by the CEO's personal finances?

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