chesapeake confirmed!, page-14

Chesapeake Energy Hits Bottom
Published: Monday, 11 Oct 2010 | 7:51 PM ET Text Size
By: Tom Brennan
Web Editor, Mad Money
If you look up the word bottom in the Cramerican dictionary, Cramer said Monday, right next to it you will see a picture of the action in Chesapeake.



Yes, the deal with CNOOC [CEO 213.15 3.54 (+1.69%) ], where the Chinese state-owned oil company will buy a third of Chesapeake [CHK 23.30 0.25 (+1.08%) ] acreage in the South Texas Eagle Ford Shale for $1.1 billion in cash, is a good indicator of CHK nadir, but Cramer saw the signs as far back as Aug. 10. He highlighted the stock as part of his weekly Off the Charts segment, saying the technical case for a bottom looked strong.

Now, with those charts finally signaling the entry point he'd been waiting for, Cramer said, Chesapeake a buy, right here, right now.

Credit two reasons for the call: One, Chesapeake is escaping incredibly low natural-gas prices by focusing more on oil, something it has both the scale and the assets to accomplish successfully. And two, it cheap. Insanely, absurdly, ridiculously cheap, Cramer said. He cited a major gap between CHK enormous private enterprise value, which is what a potential acquirer would pay for the company, and the public enterprise value, what the market will to pay for the stock. The latter simply hasnt kept pace.

Also on the cheap tip, consider the glaring differences between Chesapeake and its peers when looking at its proved reserves to enterprise value relationship. While CHK proved reserves are up 59 percent, its enterprise value has climbed just 21 percent. What about Apache? Just a 2-percent bump in proved reserves versus a 20-percent jump in enterprise value. Devon, meanwhile, has added 58 percent to its proved reserves, yet its enterprise value is up 77 percent more than three and a half times the increase in value at Chesapeake.

Right now Chesapeakes reserves are valued at a 15-percent discount to those of the average nat-gas outfit, Cramer said, even though CHK is among the best, possibly the single-best player in the industry. Thats why he thinks this is such a great opportunity to buy the stock.

The way to play CHK then is to buy it ahead of Wednesday analyst meeting, as long as you can get it at its present price level. Cramer expects news of more huge transactions that could make the Chinese deal [look like] chump change, so the time to get in just may be now.

If the Mad Money host is right, though, how high could CHK go? Well, he thinks the sum of Chesapeake parts assets in Appalachia Marcellus shale, other production assets, pipeline and gathering operations, future drilling carries and the book value of everything else the company owns is worth $73 a share before the Chinese deal.

This stock could double and still be inexpensive, Cramer said. In fact,I think it could triple.


Call Cramer: 1-800-743-CNBC

Questions for Cramer? [email protected]

Questions, comments, suggestions for the Mad Money website? [email protected]

2010 CNBC, Inc. All Rights Reserved

TOPICS:Stock Picks | Stock Market
PrintEmail
Digg
Buzz
Facebook
Twitter
More Share
1 Comment
COMMENTS
junkyjukes | Oct 11, 2010 09:06 PM ET
Thanks for the boost suckers, i'll buy it back tuesday after more sell off.
Report Abuse

ADD COMMENTS
Please Sign In or Register to participate.
Your Comments (Up to 1100 characters):

Remaining characters 1100

CNBC welcomes your contribution. Please respect our community and the integrity of its participants. CNBC reserves the right to moderate and approve your comment.