CT Programmer

Seven Stocks for an Impending Apocalypse

Great article! It's really refreshing to see someone ACTUALLY ANALYZE something, giving you both a realistic upside and downside for each stock. As opposed to the many articles on SA either ultra-hyping or ultra-bashing stocks depending on whether they are long or short. Really good analysis. Keep up the good work.

Question: You mention TSL scares you due to the cash flow lay (which of course scares me because I have TSL shares). Can you elaborate a bit?

Chesapeake Bites McLendon

Oh c'mon Lea. CHK is down just like everything else in the market is down. The recent drop is proof of nothing other than fundamentals went completely out the window. Did Aubrey being forced to sell his puts contribute? Yes, for about one day. It was down something like 10-20% the other day because of it. The huge slide came long before news of this broke, and EVERYTHING has been sliding. NG has taken huge hits as prices have come down. CHK has a lot of money coming in, and worst case is they'll start selling off some of these leaseholds to the majors like they did with BP. You've been harping on this leverage issue before, and while I don't think they're going to have enough to keep up their former pace of break-neck expansion, they definitely are not going away. Aubrey's interests are completely aligned with the shareholders, ESPECIALLY since he gets the 2.5%. I just don't buy into this cult of personality thing. But aside from that, CHK has great prospects, and if I didn't have XTO right now as my gas play (which I picked merely based on valuation at the time), I'd be picking up CHK. Were they hyped a lot? Sure. But I wouldn't count them out by a long shot.

Chesapeake Bites McLendon

I don't want to sound like I'm bearish on CHK, because I'm not. They're still huge and bought up nearly all the leases around, and I think they will always be the major contender in the NG field. But at its peak, you couldn't write one negative thing about CHK without everyone jumping all over you like you were an idiot for doubting Aubrey. And mostly the thinking went like this: Aubrey is spending all his money buying CHK, so that shows that he as an insider believes its going up, up, up. That thinking always made me nervous, and even though I rode one of CHK's waves to jump off near the top, I never got back in because my "hype-meter" kept blinking (I picked up XTO instead but still follow CHK closely). Now I think its clear that Aubrey was really just buying everything on margin --- not REALLY spending his own money, but merely speculating in it. It's also likely that the CEO of XTO (and lots of others) probably have been doing the same. Again, I'm NOT bearish on CHK or tying to bash them. Just maybe a little less enthusiastic than some. Also, I think the time for a buyout was when they were dirt-cheap last week. It's not like the oil majors are running around scooping up gas right now. If they had good incentives to do that, they would have been doing it already full force at these prices.

Chesapeake Energy Called the Market's Bluff

Mmarrkk: I'd like to hear about John McCain's executive management experience. And please don't include the fact that he was an officer in the Navy until 1981. Anyone who has been in the military knows that experience there does not translate to experience in the business world. And his 30+ years in the Congress/Senate isn't executive in nature --- its legislative. I'm not crazy about Obama, but I do get tired of everyone questioning his "executive experience" without doing the same for McCain. They're both in the same boat in my opinion.

Natural Gas: Clean Fuel with a Dirty Little Secret

As more and more NG pipelines are being built out all across the country, you will see more and more people switching from home heating oil to NG, especially in the NorthEast. Gas prices vary widely all across the country. As these pipelines even out those prices, I think you will see it drop. However, you're going to see higher demand for gas. So I think as oil rises, you're going to see more stability in gas prices at a reasonable level. And if gas prices drop too much, the gas companies (CHK, XTO, etc.) will cut back on production, thus bringing the price of gas back up. If we ever build out any real LNG export capacity, you're going to see gas prices go up by a lot.

Wind's Our Future, but Natural Gas Is Now

I am bullish on NG. However, I see the more logical path (assuming no heavy govt subsidies to steer it) toward electric vehicles fueled by NG power plants. As you said, the technology for NG vehicles and filling stations is there --- many cities have switched bus fleets to NG --- but the infrastructure is the thing that has the huge build-out cost. Imagine replacing every corner gas station (liquid) to an NG station (gas). Even with LNG, its a huge obstacle. But you've got electrical plugs and electrical lines everywhere. You just plug in in your garage. Imagine this: putting in plug-in electric meters in a parking lot where people can charge their car while at work. You have the electricity right there already (the lampposts).

But regardless of the direction NG goes --- directly in the car or to the power plant to charge your car --- I am still bullish on gas. It is the logical choice to wean us off foreign oil. Wind and solar, that's all great. It will get there in a decade or two. But it will still account for only a modest proportion of our total energy needs for the foreseeable future.

I think Obama should pick T. Boone as his VP!

Chesapeake Energy Pre-Call Notes: Another Quarter, Another Beat

JJSpano: Thanks for the info. I'd be lying if I said I understood it all. I am a programmer, but you're talking some heavy-duty statistics and accounting and I'm not experienced in all the hard-core technical analysis. JWD's blurb also sheds some light, thanks. I'm not necessarily bearish on CHK. But I'm also not so bullish either. I can understand why CHK would hedge so much. They are looking to fuel their growth and would rather lock all that in for steady expansion versus roll the dice and gamble on a big payout or coming up short and having to go to the money markets to get expansion cash. But the paltry dividend still bugs me. With so much production, you'd think Aubrey would kick some cash back to the holders. Rapid expansion or not, not having extra cash on hand to pay a good dividend is a significant indicator. I mean, this isn't some startup tech company. We're talking the largest domestic NG producer. If they're so tight on cash, that makes me nervous re-investing back into them. Which is why I went XTO and COP this time around.

Chesapeake Energy Pre-Call Notes: Another Quarter, Another Beat

I'm still not quite getting the futures thing. They earned roughly $500 million this quarter. Yet they marked down $2 billion in futures losses. That's a ratio of 4:1. That would mean they'd have to have the margin between the real price of gas and the price set on the futures exceed the actual profit by 4 times? If their actual cost was around $3 as you say, and we know real prices got up to around $10, if they futured at $8 the futures losses would only be $2 per unit ($10 - $8), yet they'd be making $5 per unit ($8 - $3). I know its not that simple, but even so in this case that's only a ratio of 2:5. Even if you pulled out other expenses maybe it would go down to 2:4. Yet their actual losses are 4:1. So I'm still not quite getting how they could have marked losses on futures that exceeds their actual profits by 4 times.

Chesapeake Energy Pre-Call Notes: Another Quarter, Another Beat

User 236069: If CHK tanks and you lose a ton of money, then you will learn the value of diversification. Putting all your eggs into one particular stock --- ANY STOCK --- is playing roulette. Think of someone two years ago that said the same thing you said, but plugged in BAC or GE or C in place of CHK because they were doing great at the time. You'd be out a ton of money. Even if you're bullish on gas, there are a lot of good gas stocks out there. CHK isn't the only game in town. And the world doesn't revolve around just natural gas.

Chesapeake Energy Pre-Call Notes: Another Quarter, Another Beat

Correction... CHK's fwd PE is 14.6. Their current PE is 28. Their current PE has ranged from 14 to the current 28, although from my watching them their fwd PE has tended to be higher than others in the field as well.

Chesapeake Energy Pre-Call Notes: Another Quarter, Another Beat

I've always been confused about CHK. They've actually lost money in both of the last two quarters because of "hedging". I'm no expert on hedging, but I always thought it was used to limit your downside risk and the tradeoff was limited upside potential. So how are they losing money then because of this? Also, if they are so big and so great, why is their dividend a paltry 0.64%? XTO is 1.04%, and even that pales compared to COP at 2.34% (I know COP is both gas and oil). Not that I don't like Chesapeake. I bought them back in February for $45 and had the sense to push the sell button at $63 at the start of the oil selloff early July (a lesson I learned from Gold earlier this year). I started looking again when they got below $50, but XTO just seemed such a better bargain (as far as fwd PE) and their dividend is twice CHK's. CHK's fwd PE has ranged anywhere from about 14 to the current 28, which I don't think is such a bargain. So I bought XTO. I'm not knocking CHK. Everyone is bullish in general on CHK, and I'm definitely bullish on gas for the next decade. But when everyone is going on about how great any given company is, that's usually when my internal warning lights start blinking.

Implementing Pickens' Plan for Public Energy Policy

What ever happened to the promise of 40, 50, 60 mpg cars? Right after the oil crisis in the 70's, Japan's cars started selling like hotcakes in America mostly because of fuel efficiency. And they kept getting better and more efficient, until we had a glut of oil and 99 cent gas, then the trend started reversing and you started seeing bigger and heavier vehicles with less and less mpg. All of what you said will happen --- the switch to non-oil-based engines --- not because of any government plan but because of economics. It will get more and more expensive to use oil as it becomes scarce, and therefore the alternatives will become cheaper. The question is whether government helps in that transition and makes it orderly, or whether they fight against it in a mad dash to save antiquated systems. I like your tax idea, but you didn't take it far enough. America needs to dump the income tax and move to an entirely sales tax based system. That is the essence of a fair system. You pay based on what you consume. The rich consume more, so will pay more taxes. The poor consume less so will pay less. No more loopholes. Taxing consumption and not income will provide social incentives to work harder and save more.

Not Calling Crude Oil Prices a Bubble For Now

ksmithdc, if you actually read this article, it explains the reason why oil prices have been so jumpy on any news is because supply is tight. When supply is not so tight, then world events don't have as much impact. When OPEC can ACTUALLY produce more, then that can increase supply. But while they won't admit it they're running full steam or pretty close to it. The strategic oil reserves account for less than 1% of our total annual use. And then the government would just have to fill them right back up. They are "strategic" (like if we went to war and got cut off from oil), not for bringing down the price of gas by 5 cents. Also, if you actually read this article or many of the other serious articles by people in the industry who actually know what they're talking about (not just anonymous AP journalists), its not speculators that are driving this. This is long-term supply and demand. China, India and the rest of the world are using more and more oil, and production is actually falling in the world. Russia is producing 5% less. Mexico is slipping. To keep production up even at the current level, there is more and more of this "marginal" oil (deep water, oil sands, etc.) being produced, but it is expensive to get at and thus drives up the overall price. Saudi Arabia's cost per barrel is about $1-5. The Canadian Oil Sands cost about $25-35 per barrel to produce. Huge difference. People keep thinking this is a bubble, and while its true that speculation may be driving the day to day price by maybe $10 here or there, the long-term trend is up, up, up. And even if America ever gets off its you-know-what and develops a REAL energy plan to ween us off oil, that will still take a decade or more. Bottom line: More demand, less production equals higher prices. Econ 101.

Will Electric Power Cause the Next Price Shock?

This article is amazing. It goes on and on about how prices are going to get higher for electricity due to a bunch of factors. Of course it will. But that is what drives innovation --- higher costs. 20 years ago solar technology was completely a loser's game. It cost more than traditional energy. Today, with subsidies, it is close to parity. Tomorrow, when the technology has had time to progress more and its in mass production, it will be cheaper. I'm no tree-hugger, but "cheap" coal ignores many deferred costs that are actual in nature, just defered. Even without legislation in effect, power companies have been cutting back or canceling coal plants. That is an economic decision, regardless of what the current administration's energy policy (or lack thereof) is. The trend away from carbon energy toward renewable and cleaner energy IS THE MARKET. Look at cars. Back when gas got relatively expensive they started coming out with more fuel efficient cars. Then gas got cheap and everyone bought SUV's. Now gas is expensive again and Toyota can't make enough Priuses. Everything in this article is accurate, but it completely ignores innovation and the impetus for technological advancement: cost. You guys all think congress amounts to more than a hill of beans where all this is concerned. The world is much bigger than just the U.S., and this stuff is all coming whether you agree with it or not.

Is the Commodity Bull Market Over?

I bought CHK back in February at $45 when Jim Jubak on MSN started talking about Bush's stupid energy policy. Back in October 2007, before the you know what all hit the fan, you could have gotten it in the high 30's if you'd had the insight. Gas will be what keeps us going in the interim between high-priced oil and mainstream "alternative" energy. I remember when people were screaming about gasoline hitting $2, like it was outrageous, and the entire economy was going to suffer, truckers would go out of business, etc.. Same at $3. Here we are approaching $4. Does anyone else see a trend here? Oil will keep going up. Period. This isn't OPEC or any given country manipulating the market. Oil is scarce, and getting scarcer. Gas is the next wave of affordable energy. As soon as there are cross-country gas pipelines (most of them are just regional now), gas will be the cheaper source. It' so cheap in Utah that natural gas vehicles drive at the equivalent of 60 cent per gallon gasoline. I'm on an oil furnace for my home right now, but as soon as it goes I'm replacing it with gas.