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☕ Time to buy Chesapeake Energy?

Jan 11, 2024

Good morning! 👋

Markets have been all over the map in early going, flipping from green to red and back again. While I like that because many of the stocks that I own are going along for the ride…

I’m leery.

The chatter I’m hearing from my network of friends in low places around the world makes me think that there’s a possibility the go-fast crowd – meaning big traders - could be orchestrating a “rug pull.”

I’m not scared about what could happen.

I simply want to make sure I don’t miss it!

Crazy, huh.

Let me explain.

Most individual investors are preconditioned to fear pullbacks, corrections, whatever you want to call ‘em. What they’re missing is that those things are almost always an opportunity in disguise.

The strong feed when the meek retreat!

Here’s my playbook.

1 – Google: One down, one to go

Google is laying off hundreds of people in its voice assistance unit and across the hardware team responsible for Pixel, Nest, and Fitbit. At the same time, most people in its AR team are being handed walking papers, too. (Read)

Google says the move is part of a planned re-org that’ll make the company more efficient and better aligned with product priorities.

That’s buzzword bingo for “we’ve stripped what we need from the companies we’ve purchased and are getting our you-know-what’s kicked by competitors in those product areas.”

Pairs Trade Idea: Long MSFT/Short GOOG.

MyPOV: The stock market has direct parallels to one of the most Darwinian principles of all, survival of the fittest. I mentioned last year that I perceived Google and Amazon as losing their mojo and it would seem that I’m running 1 for 2 so far.

2 – The cheapest bitcoin fund

Talk about a turnaround.

After hating it, denying the validity, and doing everything they can to stomp it out, both the SEC and Wall Street have embraced Bitcoin.

Prices hit $47,000.

No, thank you.

You still can’t trade Bitcoin for a cheeseburger, nor can you use it widely. Heck, it’s still quoted in dollars which is itself a lesson in irony.

I’ll stick with Wall Street’s approach and digital clearing where the future is much more sustainable, there’s a dividend, and few regulatory challenges. Upgrade to Paid.

My hat is off to everyone who’s on board with crypto, though – well done!

CNBC, btw, reports that the “cheapest” Bitcoin fund is the Bitwise Bitcoin ETF (BITB) which will come with an expense ratio of 0.20%. (Read)

3 – A real world Palantir example

People have a hard time wrapping their mind around Palantir and what it does. So, here’s a quick look, courtesy of my friend Arny Trezzi (@arny_trezzi), a noted Palantir expert and observer.

“Could Boeing have avoided the latest 737 problems?” he asks.

Perhaps…. by having software that helps analyze reliability and which suggests preventive maintenance.

Which is exactly what rival Airbus built with Palantir.

My target is still $50 a share.

4 – Downtown or Ghost Town?

Here’s a number that will wake you up if you haven’t had your coffee yet. A new study shows that 19.6% of US office space is currently unoccupied. (Read)

At the risk of sounding like a broken record, REIT investors beware.

Anything with Class A urban office space in it is a risk you don’t want in your portfolio.

As I noted in my 2024 Annual Outlook recently, I think this is the year when the chickens come home to roost as managers are forced to contend with markdowns, higher vacancies, and declining rent-rolls.

I’ve heard more than a few stories anecdotally about property managers leasing space at below market rates just to keep their properties occupied. And, not for nothing, I see gobs of empty office park space whenever I’m out on a ride.

You?

5 – Time to buy Chesapeake Energy?

Chesapeake Energy is merging with Southwestern Gas to create what the Wall Street Journal calls a “New Gas Behemoth.” (Read)

I agree with that assessment.

The newly combined company will be the largest natural gas exploration and production company in the country as measured by market cap, enterprise value and production if I’ve done my back of the envelope calculations correctly.

Two questions come to mind.

What will the regulators have to say about it? The irony is that they may not give a rip even though something of this nature would set off more alarm bells than a fire station if it were tech companies getting together.
Will the dividend survive? Chesapeake emerged from bankruptcy a few years ago so I’ll be curious to see if the dividend policy changes and what that might look like. The Debt-to-Equity Ratio is still higher than I’d like to see but has come down dramatically over the past few years so there’s an argument to be made that management knows what it’s doing.

That’s reflected in the company’s stock, which has done well over the past 5 years, returning 103.17% versus the S&P 500, which has returned 27.72% over the same time frame according to Bloomberg data.

Hmmm.