Friday, November 18

CHK - Chesapeake Energy

I havent done a recommendation in quite a while and discovered its actually fun to do one. Here's a recommendation to consider.

Chesapeake Energy (CHK) has pulled back from its recent highs. The run up for the year has been over 70% (the stock doubling at one point). While this may seem like astronomical performance, my opinion is that this is an opportunity to buy. Natural gas stocks are currently under pressure due to unexpectedly warm Fall weather in the cold regions, thus lowering expectations on natural gas usage in the winter. First of all, the weather is as predictable as the markets direction.

Chesapeake in particular has come under pressure primarily because of profit taking. Insiders in the meanwhile have purchased in large quantities in September. The company has strong fundamentals and the long term technical trend remains bullish, with stock price still riding barely above 100 day and 200 day moving averages. The price did flirt with the 100 day trendline and dipped below it slightly during the recent pullback, but as mentioned earlier, insiders have been buying on these dips. Options based sentiment (contrarian indicator) suggests bullish action, the volume put-call ratio seems to be making a turn off a recent high indicating a bullish move. The Open interest put-call ratio is showing similar short-term high.

I would suggest adding this to your watch list and looking for opening a position on the first positive sign on natural gas. Compared to other stocks in the sector, CHK has a stronger growth potential with proven earnings, at an affordable price.


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