Chesapeake Energy, Monsanto: Paying Tit for Tat

With gas and food prices skyrocketing, I have found a way to pay for my gasoline, utilities and food by buying the stocks of energy/agriculture companies.

To pay for my gasoline and utilities, I purchased call options on Chesapeake Energy (CHK). CHK is the largest independent producer of natural gas in the US and they are poised for growth. Utility companies will have an increased use for clean burning natural gas as oil prices remain high. We have an abundance of natural gas right here in the U.S. where CHK drills in nine different locations. With a growing demand for natural gas, a PEG of 1.11 and a Price/Earnings ratio of 14.66, CHK should continue to see their stock grow during this energy bull market. Their CEO has purchased millions of dollars of stock which shows that he is putting his money where his mouth is. Other promising energy stocks include: XTO Energy (XTO), Apache Corporation (APA) and Transocean (RIG).

To pay for my food, I purchased call options on the agriculture company, Monsanto (MON). Monsanto's stock price doubled in 2007, which more than paid for my groceries and dinners out. MON produces seeds that cause plants to maximize their yields. With lowered grain inventory levels throughout the world, a PEG of 1.02 and quarterly earnings growth of 107.9%, MON is poised to have an increasing stock price during the agriculture bull market. Other booming ag stocks are: The Mosaic Company (MOS) and Potash (POT).

So, if you're frustrated at the high price of gas and food, just use your tax rebate check to invest in energy and agriculture to help pay for those increasing bills.

Disclosure: Author owns positions in CHK and MON

Comments

[worthy]

Very dangerous advice! While one can agree that these companies represent industries that are booming, They could correct at any time leaving the option buyer penniless. There are safer ways to hedge against higher food and energy costs such as going long companies or etf's that reflect same.

[richjoy]

Sorry worthy...though I too go long the ETFs and the company stocksworthy, I disagree with your condemnation of options.

Options are a viable way to play the boom market for commodities.

In fact, options provide a way to far greater profits than your approach, with far less invested.

There is lots of room for both approaches (and I'm sure Mr. Zanoni would suggest you use options for only a portion of your investment allocation.

[Rikiki]

If you indeed are bullish on the mentioned stocks and want to do call options, I suggest you use a bull call spread. By doing so you will limit your loss if stock goes south. You can achieve almost the same effect with a bull put spread. Limited losses, and of course limited gains result from selling (often) the front month higher call and buying a like number of lower strike calls with the stock price somewhere (usually) in the middle of the spread. Spreads give the option trader more control of his money in the speculative kitty. Gamblers in volatile stocks with naked call positions can get skinned very quickly. See BIDU, CF, POT, ISRG. et. al.
Rikiki

[pitchforkpaul]

Don't forget coal as in ANR, BTU, CNX, ACI, Patriot, and KOL... BG does seed oils as well as potash and fertilizer. CALM has lots of upside also! I just buy the stock! Options work too!

[CTProgrammer]

A better value than POT, which currently has a PE of about 60+, and MOS (around 40), is YARA International (YARIY). Potash may be the big boy in North America, but YARA is the largest international fertilizer company, with inline natural gas energy production to keep costs down. They are trading at a PE in the 20's lately. They recently negotiated a 230% price increase with the largest Chinese fertilizer distributor. Their stock, like POT, is on a tear, but still undervalued due to the huge boom in ag-related industry, and much cheaper than MOS and POT.