Chesapeake Energy Stock: Buy or Beware?http://www.fool.com/investing/general/2013/04/10/chesapeake-energy-stock-buy-or-beware.aspx Matt DiLallo
April 10, 2013
Few stocks in oil and gas industry are more hotly debated than Chesapeake Energy (NYSE: CHK). Former CEO Aubrey McClendon really seemed to live up to the wildcat reputation of a typical Midwestern oil man. Unfortunately, that never sat well with investors, and he recently rode off into the sunset by taking an early retirement.
While a new leader has yet to be hired, the company that person will inherit is one that's still in transition. Should you buy the stock now knowing it has nowhere to go but up? Or is caution the better part of valor, with the best view being from the sidelines?
What's so great about Chesapeake Energy?
While those low prices are currently a problem for Chesapeake Energy and investors in its stock, it does give a hint at its future potential. Demand for natural gas is heading higher, which over time should push its price up as well. In the future, that demand will come from a variety of new sources, including chemical and electrical production as well as an increase in the use of natural gas as a transportation fuel.
Until that demand is realized, Chesapeake Energy is spending billions to grow its oil and natural gas liquids production. The company is now the 11th-largest liquids producer in the country, and production is growing every day. As you can see from this map, the company has a foothold in some of the best-producing areas of the U.S.:
This transition will fuel the company's near-term profits while a recovery in the price of natural gas will really boost the long-term value its stock.
So, what's the downside here?