Now that we are into the month of December, it is the perfect time to take a hard look at beaten-down stocks that could be temporarily depressed from seasonal tax-loss selling. That is because when the selling pressure lifts after December 31, select stocks can see a quick and meaningful rebound. This seasonal opportunity is one of the best in the market for investors who buy depressed stocks and sell into what is typically referred to as the "January Effect" rally. The shares of Chesapeake Energy Corporation (CHK) fits the profile of a stock that could be poised to rally into January. Here is a closer look at why:
Chesapeake Energy shareholders have had a rough 2012. The stock traded over $26 earlier this year, but a variety of concerns has pushed the shares to just about $17. A few months back it was disclosed that former CEO Aubrey McClendon had interests in some of Chesapeake's wells and that caused investors concern and even SEC inquiries. It also led to some management changes and what appears to be an increased focus on increasing shareholder value.
However, Chesapeake Energy has some of the most valuable oil and gas assets in the United States with interests in the Barnett Shale, the Haynesville and Bossier Shales, the Fayetteville Shale, the Marcellus Shale and the Eagle Ford Shale. These are all high-potential projects and Chesapeake's assets could be attractive for other companies to buy. In recent months, analysts have cited Exxon Mobil (XOM) as a potential buyer for the company or possibly some of its assets. A major asset sale deal or buyout of the company could be a strong upside catalyst for the stock because it would unlock some or all of the value.
Billionaire investor Carl Icahn has been investing millions of dollars into Chesapeake in recent months. That type of interest from an experienced and activist investor is likely to keep a floor under the stock around current levels. It has been trading in a range of about $16.50 to around $17.50 in the past couple of weeks and appears poised to rally into January once the supply of cheap shares from investors selling for tax-loss reasons ends in 4 weeks. This should lead to strength in the share price in January and that could even cause some shorts to cover. According to Shortsqueeze.com, Chesapeake has nearly 76 million shares short, and that could add to the upside potential into 2013.
Here are some key points for CHK:
Current share price: $17.17
The 52 week range is $13.32 to $26.16
Earnings estimates for 2012: 48 cents per share
Earnings estimates for 2013: $1.35 per share
Annual dividend: 35 cents per share which yields 2%
Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.