Be Greedy for Chesapeake

It is unlikely the fundamentals of Chesapeake changed drastically enough to justify this punishment. Instead, investors have been driven by fear - perhaps justified. But it's time for greed to take over. The stock trades at a price-to-earnings ratio of only 8 while names such as EOG Resources(EOG) and Range Resources(RRC) carry multiples of 27 and 270 respectively.

Another comparison is Console Energy(CNX) . While the company is fundamentally sound in its own right, its P/E of 14 is still almost twice that of Chesapeake and it offers a smaller dividend.

To top it all off, in terms of profitability, Chesapeake offers both higher profits and operating margins than each of these names that sports higher multiples.

Say what you want about McClendon's "internal affairs" but absent some gross SEC violations it is hard to not see this as an opportunity to be greedy.

Bottom Line

Obviously Chesapeake has more than its share of challenges, but they are not of the death-sentence variety and the company should be able to overcome them. The earnings results as well as its outlook demonstrated that the company has not lost its focus. Confidence in management is an entirely separate issue. Chesapeake is in a business that presents a critical need and costs will eventually normalize.

While there is short-term volatility, the natural gas industry and in particular stocks such as Chesapeake will continue to be important players on the market. Investors would be wise to become greedy on this weakness as Chesapeake may prove to be an excellent recovery play.