Why Chesapeake Energy Corporation Might Pull Back in 2014

Does this analyst make a good case or is it just more noise from Wall Street?

Jan 7, 2014 at 2:15PM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Chesapeake Energy Corporation (NYSE:CHK) traded sluggishly on Tuesday after Bank of America downgraded the natural gas and oil company from buy to neutral.

So what: Along with the downgrade, analyst Doug Leggate lowered his price target to $31 (from $36), representing about 18% worth of upside to yesterday's close. While momentum traders might be attracted to the stock's strong return in 2013, Leggate believes that much of Chesapeake's improvement potential is already being discounted by Mr. Market.

Now what: According to B of A, Chesapeake's risk/reward trade-off isn't as attractive as it was last year. "At the root of this change is that the recovery thesis which initially attracted us to CHK's distressed valuation has largely played out," noted B of A. "While we expect CHK to accelerate efforts to improve efficiency across the board, including steps to increase free cash flow, much of this has arguably been recognized in a share price that appreciated 63% in the past year." With Chesapeake shares still trading at a forward P/E of only 11, however, Fools shouldn't be so quick to dismiss the upside potential.  

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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