Wednesday, August 09, 2006

Energy Remains Attractive

I firmly believe that the energy sector looks attractive on a slight pullback. I already own Chesapeake Energy (NYSE: CHK). CHK is the best run natural gas company in the country. 90% of their remaining gas production in 2006 is hedged out at $9.17. 72% of 2007 production is hedged at $9.88.

I like the Canadian Oil Sands as direct play on higher crude prices. The best play is Suncor Energy (NYSE: SU). Although Suncor trades at a higher P/E than its peers; it has more organic growth than the competition. SU expects to increase oil sands production from the current 260,000 bpd to 550,000 by 2010. With Suncor you get oil sands exposure, ethanol, refining, and exploration.

I also like SLB on a pullback.

Note: I am long CHK


Blogger John Aslanidis said...

Although I agree that CHK is a good long term investment, I strongly believe that the timing on that stock is wrong right now. The upside is limited, while the down side can easily exceed the limited short term rewards. I base this on three criteria:
1)The stock is fairly valued, based on a PE of 8 to 9 on 07 EOY earnings.
2) The preferred shares they have issued, will dilute future earnings.
3) The prediction of a heavy hurricane season has not come true.
As I stated before, there is no doubt that CHK is a solid company, with a solid mgmt team with a history of executing.
The problem is that natural gas at best is dead money in the short term. You are better off waiting for a pull back to the mid to high 20s. Just my opinion.

8/11/2006 8:43 PM  
Blogger Big Ben said...


I 100% agree with you. CHK will see $29 before it hits $35. I am still going to stay long.

8/11/2006 9:27 PM  

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