What has happened to Chesapeake Energy (CHK) during the last thirty days is a classic case of panic selling. The news has been bad. The CEO/Chairman of the Board was discovered to be borrowing billions and leading a hedge fund on the side while his company missed its economic forecasts for the recent quarter. It was close to panic selling with each revelation. People whispered is this another Enron? Could the company fail?
We witnessed a great bear feeding frenzy. Rational behavior was run off with the panic screams of "bear, bear!" Having been on many trails with many bears on them across the United States for the past fifty years, I can tell you a thing or two about bears and bear attacks. Generally, bears are looking for food. The bears have certainly gotten their full of Chesapeake Energy this past month. Now what?
The masses do things they should not do when a bear appears. Their rationality all too often disappears. They run in a panic which is the worst thing you can do. This is exactly what has happened with Chesapeake Energy's stock holders. They panicked. They ran to exit the stock. Today, the stock is at a value below that of 2009 when it dipped into single digits.
People's memories are short. People are told not to run when seeing a bear, but many do and they can lose a lot. Chesapeake Energy was established as an American corporation in a high risk industry, led by visionaries of fortitude and ingenuity who engaged in game-changing technology to advance a dream. Today, Americans are able to dream, the impossible dream of becoming energy independent because of Chesapeake Energy. But in a matter of days, it became the pariah of the stock market and now sits around a 52 week low.
As a stock holder, I do not approve of what has unfolded within Chesapeake's failed corporate governance and oversight responsibilities to its shareholders, but I do assume that these will be dealt with accordingly. These issues do not remit certain facts:
- Chesapeake's stock is woefully undervalued;
- it very well may have 350 TCFE of natural gas reserves (not counting liquids) under its 15.3 million acres of leases (Chesapeake's 2011 Annual Report) and;
- natural gas prices are at a ten year low only in North America.
As a result, while people have been running crying "bear," I have been quiet, patient, and still taking long positions for I believe Chesapeake and its CEO are more acutely focused today on proving that this company is one of the best values in America. Who knows, it would only take one big oil and gas corporation to agree and buy it after this recent bear attack.
Disclosure: I am long CHK.