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Will Energy Rebound? If It Does, I’ll Make Alot Of Money

14 August 2008 4 Comments

As my readers know, I am heavily invested in natural gas, namely with the company, Chesapeake Energy (CHK). Since the peak in oil and natural gas prices, the stock has been hammered hard. Thankfully, as I reported through this blog, I continually sold my CHK position as it went up and up eventually peaking at $74 a share. I have been buying up shares now as the stock is way off its highs.

Many people are calling the energy story, especially oil, over. Some of the experts who just weeks ago were predicting $150 oil are now predicting $80 oil. Which one is it Mr. Expert? Some of the voices I trust the most, such as Jim Rogers, are not convinced the commodity bull market is over. Neither am I.

I think now is a great time to buy natural gas related stocks.  Over the short term, you are poised for some serious gains if any kind of rebound happens in prices.  Over the long term, energy policy in the United States should be very favorable for natural gas prices.

Boone Pickens and Chesapeake CEO, Aubrey McClendon, have been hitting congress hard to get behind the idea of using domestic natural gas to power transportation here in the States.  Chesapeake Energy with their incredible production growth is poised to benefit hugely should such a concept begin to gain traction.

In the short term, it looks like the stock is trading tick for tick with gas prices.  Any break in the downtrend of natural gas prices will result in a nice bounce from the current levels.

One risk associated with Chesapeake is the high level of debt they are carrying.  I am looking for them to announce more ways to monetize assets and pay down some of their debt.  They have been financing their aggressive growth through issuing more equity which is diluting their stock in addition to additional debt, but I don’t believe it is as large of a concern as others think.  Remember the situation in the financial sector right now…banks are diluting their shares way more and they aren’t producing something valuable like Chesapeake.

Maybe it’s time you took a hard look at natural gas?

4 Comments »

  • Sean said:

    What do you think of BP buying a large stake in Chesapeake?

    See WSJ: http://online.wsj.com/article/SB122035143255990243.html?mod=hps_us_whats_news

  • kevin duffey said:

    I like the move because it allows Chesapeake to fund their drilling and production without having to issue more debt or equity. They have been criticized heavily for the high levels of debt and the continuing reissuing of more equity. They need to continue to monetize various assets like they have been doing. I think management is doing a great job.