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With Today's Plunge in Natural Gas, It's Time to Rebuy Chesapeake Energy
03/09/2015 5:37 pm EST
Given today's plunge, coupled with the warmer weather forecast and start of the shoulder season of weaker demand, MoneyShow's Jim Jubak is rebuying shares of the second-largest natural gas producer in the US with an initial target price of $19.
Back on February 3, I sold Chesapeake Energy (CHK)-my favorite stock for playing volatility in the price of natural gas-out of my Jubak's Picks Portfolio. The rally that had taken the share price from the December low of $16.71 to $21.01 was a bounce, I said, rather than the beginning of a sustained recovery. (See my post on the sell here.)
The stock closed even lower than that December level today, March 9, at $14.24. That's near a new 52-week low for the shares and is closing in on the five-year low at $13.59.
I think it's time to rebuy-maybe for another trade after a bounce, maybe for a more sustained recovery-we'll see. Tomorrow, I'll re-add these shares to my Jubak's Picks portfolio.
The big blow to natural gas prices today is a weather forecast calling for warmer temperatures in the eastern half of the country. (It's 54 degrees in New York City as I write this on March 9.) That took the price of natural gas for April 15 delivery down to $2.69 per million BTUs. That's a 5.39% drop on the day. Shares of Chesapeake fell 6.13% on the drop in gas prices.
The 52-week low to high swing in Chesapeake is $14.22 to $29.92. The bottom of the Bollinger Band on these shares is at $13.99.
Of course, just because these shares are near the 52-week and five-year lows doesn't mean they can't get cheaper. Somewhat cheaper wouldn't be a huge surprise since we are entering the shoulder season of weaker demand that falls in between the winter heating season and the summer cooling season. I think the odds are against a huge drop from here.
The 50-day moving average for these shares is $19 and I'd expect that to represent the first serious resistance on any move upwards. I'd set that level as my initial target price.
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