Markets

Chesapeake Energy: Energized

A big domestic natural gas producer gets a vote of confidence.

There's no natural gas in the Chesapeake Bay off of Maryland, but Chesapeake Energy is awash in the stuff. The company is based in Oklahoma and is America's largest active onshore gas driller, with 87 rigs at work. A few days ago, Chesapeake raised its forecasts for 2007 gas production and average prices, earning positive Wall Street attention. Yesterday, Goldman Sachs upgraded Chesapeake's stock (symbol CHK) from neutral to buy. Three days earlier, JP Morgan had promoted it to overweight.

Given the company's single-minded focus, it's no surprise that the movements of its stock are tethered to a single product, natural gas. In recent weeks, spot-market and futures prices for gas have soared, primarily because of soaring demand for power during a blistering heat wave that has engulfed much of the U.S. Of course, prices could reverse course if the weather moderates, but it's hard to see them weakening much. Demand is rising fast and it's harder to find new supplies. Chesapeake's strategy of drilling in well-known onshore gas fields makes for a high degree of confidence that its wells will deliver.

Chesapeake trades at $33, about the midpoint of its 52-week range. At nine times trailing earnings per share, it's priced about the same as other major production companies. It yields little, just 0.7%. But that's okay because Chesapeake is not a utility but a true growth company. It claims a 33% compound annual increase in gas production for the past four years, gobs of interesting development projects in Texas and the rest of the Southwest, and a big position in many gas fields where the margin between production costs and the market price of gas is wider than the national average. If you're an energy bull and enjoy the comfort of investing close to home, here's a chance to buy shares of a first-class company at a fair price.

Most Popular

Why Are Gas Prices Still Going Up?
spending

Why Are Gas Prices Still Going Up?

The cost of a gallon of gas is at an all-time high. What’s driving the surge and will gas prices go down anytime soon?
May 23, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Which States' Taxes Are Going Down
Tax Breaks

Which States' Taxes Are Going Down

State lawmakers are cutting income, sales and property taxes to return budget surpluses to residents.
May 25, 2022

Recommended

Stock Market Today (5/27/22): Stocks Snap Weekly Losing Streak
Stock Market Today

Stock Market Today (5/27/22): Stocks Snap Weekly Losing Streak

The latest inflation data helped lift investor sentiment on Friday, as did a round of well-received tech earnings.
May 27, 2022
Is the Stock Market Closed on Memorial Day 2022?
Markets

Is the Stock Market Closed on Memorial Day 2022?

The stock market gets a full day off for Memorial Day. The bond market gets Monday off too, not to mention an early close ahead of the holiday weekend…
May 27, 2022
What Is Preferred Stock, And Should I Buy It?
investing

What Is Preferred Stock, And Should I Buy It?

Thinking of adding preferred stock to your portfolio? Read on for a breakdown of the pros and cons to buying preferred shares.
May 26, 2022
Stock Market Today (5/26/22): Retail Roars Back, Markets Build Positive Momo
Stock Market Today

Stock Market Today (5/26/22): Retail Roars Back, Markets Build Positive Momo

Discount retailers Dollar General (DG) and Dollar Tree (DLTR) were at the forefront of a second straight session of broad market gains.
May 26, 2022