Tuesday, December 27, 2005

Chesapeake Energy (CHK)

I just bought some CHK. A lot of professionals have been talking about a qualitative change in natural gas economics in 2006, since it is now economically feasible to extract gas from unconventional sources, such as some of the shales which Chesapeake is sitting on. Whether or not they are right, their self-fulfilling prophecy should help a little: the price may go up in the short term as people buy because of their predictions, whether right or wrong, which will set the baseline for further changes higher.

In addition, the weather gazers are predicting another rough hurricane season next year. If it disrupts oil imports and storage in the New Orleans region, as it did this year, that will also help natural gas.

Yet another reason: An electronic soothsayer called StockScouter, available for free on MSN Investing, rates CHK 10/10. I haven't been that impressed by StockScouter in the past, but it's better than nothing, and once again, there may be a self-fulfilling prophecy here.

And yet another reason that I bought: The insiders are buying. Usually, when you look behind the one-word insider "positive" rating by the professionals, it turns out to mean nothing. Eight executives exercised two options each, for a total of $37. (Insider sell warnings are worth even less, unless you do the real research yourself.) In the case of Chesapeake, however, the president and the chairman of the board each bought 4 million dollars worth about a week ago, at slightly above today's price. They may be wrong, but I suspect that they're serious.

In addition, the two more-or-less independent research companies whose opinion I like to see on these things, S&P and Argus, seem to like CHK. (Just to be fair: the VectorVest auto-gadget doesn't like it.)

Are five weak reasons almost as good as one good one?


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