Chesapeake Energy Corp (CHK)

FOOLBEFREE (28.27) Submitted: 4/01/07 6:35 PM : Start Price: $30.64 CHK Score: -8.33

CHK has many great reasons for a long term investment as opposed to MO. The trends and valuation favor CHK.

1.CHK is undervalued by all key stats (PEG, P/E, Price/Book) comparing to growth- Q4 profit rose 29%.
2.Demand is rising and US production is down means higher margins.

Nat gas production in US in last 5 years is down.

Demand will rise because:

a. There is a long-term shift to the cleaner fuels such as natural gas. Natural gas is a clean fuel and more power plants will be built to burn nat gas as opposed to coal. Democrats in Congress will limit coal plants to help environment.

b. Ethanol production requires natural gas.

c. More warm winters are highly improbable. Winters may be colder than average.

d. Demand will rise in the summer because more power plants will burn natural gas.
TXU had to announce that it will reduce the number of coal fired plants to be built. Nat gas plants are faster to build than nuclear plants.

e. Future prices in NYMEX are 20% higher than current 7.71.

f. Utilities are expanding piping to more commercial and residential users.

3.Low competition, no easy substitutes will keep margins high.

4.CEO strongly believes in his company, owns 6% and buying more.

5. CHK has the 3rd largest drilling rig fleet, which will keep margins high.

6. It pays a small dividend that should increase in the future.

7. IBD accumulation/distribution is a B+, meaning institutions are buying. High Overall diagnostics of A-.

8. Chesapeake (CHK) is widely lauded as the most savvy user of complex hedging techniques to add to earnings among exploration and production companies and is often described as being at the forefront of advocating risk management strategies to the sector.

9. New gas wells require unique drilling techniques to extract natural gas, and Chesapeake has the best expertise. Major oil companies are not interested in the small natural gas wells recently found in North America.

10. Natural gas is a commodity, which is very good to own during a slow US economy.

Yesterday, I switched my house natural gas provider and signed a 12 month fixed price. I just think that demand for natural gas will go up in December and over the next 5 years.

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