March 19, 2013
Spending hundreds of millions to billions of dollars simply to maintain growth is a key characteristic of much of the energy and materials space. Due to shareholder expectations, companies that aren't generating cash from operations typically turn to debt or equity sales. Each of the four companies discussed in the video below has driven up its debt levels to heights that worry Motley Fool analyst Taylor Muckerman.
Two companies on the wrong side of the fence
Of the four companies, two materials companies worry him the most. AK Steel (NYSE: AKS ) is trying to survive in the maligned United States steel industry, and Berry Plastics (NYSE: BERY ) is finding it tough to overcome interest expenses stemming from acquisition-related debt. Both of these companies need to figure out a way to right their ship, and quickly.
Will a natural gas rebound bail these producers out?
Two natural gas prices also "passed" Taylor's screen, and he believes they have a chance to rebound along with natural gas prices. Writedowns in 2012 forced Ultra Petroleum (NYSE: UPL ) and Quicksilver Resources (NYSE: KWK ) into precarious situations, but with prices climbing, these companies should be fine.
High debt levels have led Chesapeake Energy to sell assets. Could the companies above follow suit? Energy investors would be hard-pressed to find another company trading at a deeper discount than Chesapeake Energy. Its share price depreciated after negative news surfaced concerning the company's management and spiraling debt picture. While the debt issues still persist, giant steps have been taken to help mitigate the problems. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.