Demand for natural gas in the U.S. has consistently outstripped domestic production. According to the Energy Information Administration, every $1 increase in the price of natural gas costs U.S. consumers an additional $22 billion to run their air conditioners, heaters, and means of production for a variety of consumer goods. That could help explain why Motley Fool Inside Value recommendation Chesapeake Energy
With 9 trillion cubic feet of proven reserves, natural gas comprises 92% of the annual production of gas and oil production of Chesapeake Energy. Consumption is expected to increase to 900 billion cubic feet that ought to give the domestic gas producer a competitive advantage over rivals like Anadarko
CAPS take
More than 1,800 professional and novice investors alike have weighed in with their opinion at Motley Fool CAPS that Chesapeake will overwhelmingly outperform the market. One-third of those bullish investors are considered All-Stars, top-rated players who consistently outperform their peers.
Last year, top-rated All-Star WBuffettJr, who's rated higher than 99.48% of all other CAPS investors, saw Chesapeake as a quality investment with a wildcard factor thrown in:
This company is pretty cheaply priced given its confirmed and mostly confirmed holdings, and is astonishingly cheap given its MASSIVE potential upside in unproven reserves. I don't like to refer to a quality value investment as a 'lottery ticket,' because I don't invest that way, but one could hold this company in that light, in some respects. It's not as speculative as a lottery ticket because you're buying assets at a great price (natural gas is already hedged for much of the next three years), but in a way is a lottery ticket because of the potential. Think of it as a quality investment with this great speculative aspect thrown in on the side for free. Don't price in the speculation, but be pleasantly surprised if it hits.
Metoo105, another Chesapeake bull All-Star with a near-perfect 99.97 CAPS rating, also sees some unknowns in the gas producer.
The LNG factor is pretty cloudy right now, especially now that Gazprom seems more interested in supplying the Europeans than the U.S. This might change if the U.S. stops running interference on their WTO application. I mean, damn, are they really going to get that upset over allofmp3.com when China is quite literally stealing everything with no repercussions? Apple must have some great trade lobbyists working for them since the Russians at least have a pretty good legal argument that they can make. But I am digressing.
Another thing -- Kyoto -- might kick in if the Dems win back the Presidency and maintain control of Congress in a couple of years. That would make the U.S. wake up and take notice of the carbon load they've been contributing. How about we put a dollar figure on that negative externality? I am pretty sure that the insurance cos. wouldn't object. Again this is a probability of an upside gain against a limited or zero downside risk.
Also we've got the secular commodity bull in its infancy? Who cares really. The price of NG is down, they are cutting production, and their share price is still doing fine. They've got a discount b/c folks mistake them for the co. that they once were and assume that there is more risk baked into the share price than there is. (Levels of debt look fine to me.)
My take
Despite some murky associations with an industry advocacy group that it was bankrolling (but has since abandoned after it came under attack), Chesapeake seems like a solid investment, considering overall natural gas demand and its place in the industry. As the sixth-largest natural gas producer, hanging around with the likes of BP
Your take
While the CAPS community is pretty uniform in its thoughts on Chesapeake, your opinion counts just as much. Make your voice heard and let us know whether you think Chesapeake is a clean sweep or a toxic assault on your portfolio.
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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
