Beware of Advice!
January 11th, 2007:
Hello All! I know I've not been blogging as much as I should, but things have gone crazy at work after the holidays, and I've been out of town quite a bit, which held my blogging back.
So, today I was reading an article at Business Week (read it here), which had the headline, "Stocks: Six Supercharged Standouts" You always have to be weary when you see a headline like that, but this one had one pick on the list that I believe is not only a good long, but is an excellent SHORT! This in my opinion is no more than gross negligence.
They made there picks by screening stocks on earnings growth, return on equity, and how efficient they deploy capital.
There #2 pick was Chesapeake Energy (CHK). This is a horrible pick. As an oil industry employee, investor, and follower, I can give you some insight on why this stock came out smelling like roses to them. In the past, CHK did an excellent job hedging natural gas at high prices. All those hedges were at more than $10-11/Mcf, some of which was hedged at up to $15/Mcf... now they'll be luck to get $6/Mcf because they have almost nothing hedged.
Top this off with the fact that they have been shutting in alot of wells and not drilling many to replace them. They claim the shut in is b/c the hedges are coming off, but most people inside think it's because the wells are no longer economic! That will mean a reserve write down. So, what you'll see is that when they report this month they'll probably be okay, but next quarter they'll fall of a cliff!
I would look for them to have earnings drop to about $3/share and their multiple drop to 6.5, which means the current price of $27.30 will drop to about $19.50, or far below their 52 week low. To be honest though, it wouldn't surprise me at all if they were out of business in 3 years.
And today's hot tip is a SHORT. I will, in the morning, put a short on Southwest Energey (SWN). This company just sold a bunch of rigs to raise capital, and then turned around and rented them. This is because they need money to keep the operation going. Their P/E ratio is over inflated (~28 multiple), especially for the oil industry, which has a multiple of about 8-10 as an industry. I think when they miss earning this quarter you'll see the stock drop precipitously from about $33.55 to maybe $15/share... This is also a company that I think will be out of business in 2-3 years.
Happy shorting or put-ting!
Hello All! I know I've not been blogging as much as I should, but things have gone crazy at work after the holidays, and I've been out of town quite a bit, which held my blogging back.
So, today I was reading an article at Business Week (read it here), which had the headline, "Stocks: Six Supercharged Standouts" You always have to be weary when you see a headline like that, but this one had one pick on the list that I believe is not only a good long, but is an excellent SHORT! This in my opinion is no more than gross negligence.
They made there picks by screening stocks on earnings growth, return on equity, and how efficient they deploy capital.
There #2 pick was Chesapeake Energy (CHK). This is a horrible pick. As an oil industry employee, investor, and follower, I can give you some insight on why this stock came out smelling like roses to them. In the past, CHK did an excellent job hedging natural gas at high prices. All those hedges were at more than $10-11/Mcf, some of which was hedged at up to $15/Mcf... now they'll be luck to get $6/Mcf because they have almost nothing hedged.
Top this off with the fact that they have been shutting in alot of wells and not drilling many to replace them. They claim the shut in is b/c the hedges are coming off, but most people inside think it's because the wells are no longer economic! That will mean a reserve write down. So, what you'll see is that when they report this month they'll probably be okay, but next quarter they'll fall of a cliff!
I would look for them to have earnings drop to about $3/share and their multiple drop to 6.5, which means the current price of $27.30 will drop to about $19.50, or far below their 52 week low. To be honest though, it wouldn't surprise me at all if they were out of business in 3 years.
And today's hot tip is a SHORT. I will, in the morning, put a short on Southwest Energey (SWN). This company just sold a bunch of rigs to raise capital, and then turned around and rented them. This is because they need money to keep the operation going. Their P/E ratio is over inflated (~28 multiple), especially for the oil industry, which has a multiple of about 8-10 as an industry. I think when they miss earning this quarter you'll see the stock drop precipitously from about $33.55 to maybe $15/share... This is also a company that I think will be out of business in 2-3 years.
Happy shorting or put-ting!
Labels: Business Week, Chesapeake, CHK, investing, market, money, retirement, southwest energy, stocks, SWN, trading
posted by Dr. Cam at 7:30 PM
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