According to Peter Lynch, a well known money manager, executives of a company may sell their stock for any reason they choose. However, most of them only buy their company’s stock for one reason – They believe the price is going to increase.
Chesapeake Energy Corporation (NYSE:CHK) has seen a 46% increase in stock price, since its low water mark in May of this year. However, one of the directors of the company purchased $1.5 million worth of shares during the last week. What makes this purchase stand out, is the fact that shares purchased were not option grants, but actual open market purchases. This means they were bought in the same way that any outside investor would purchase shares in the oil and gas giant.
Daily Finance points out in a report, that following the executives of a company can often be profitable, however, the report also recommends caution. The reason for the caution is that energy stock holds a cylical value, in most cases. While in many cases, an inflated market signals an expanding economy, this is not true at this point in time. The market is rising due to the Federal Reserve’s monetary easing, which has forced liquid cash into the market, thus easing the strain of a downturn.
While Chesapeake Energy Corporation (NYSE:CHK) looks to profit in the near future, there are still some serious obstacles to overcome. One of the biggest obstacles is Aubrey McClendon’s personal loans, with company wells as collateral, as we reported earlier this year. McClendon’s actions have not been taken lightly by shareholders, and though he addressed a Barclays conference earlier this year, he has for the most part, remained behind the scenes, following the scandal. Chesapeake Energy Corporation (NYSE:CHK) also has many lawsuits pending in multiple states, regarding their payment, or lack thereof, on oil leases in those states.
Daily Finance likens McClendon to a high stakes gambler, who is betting everything the company has on each new deal that comes along. While it has paid off in some areas, such as asset sales to Royal Dutch Shell plc (ADR) (NYSE:RDS.A) (NYSE:RDS.B) and Chevron Corporation (NYSE:CVX), which raised $13 billion in cash, the luck of the draw has to run out at some point. It may also be noted that had Chesapeake Energy Corporation (NYSE:CHK) not gone through with those asset sales, then they may have been over their head in debt, which could have prompted serious repercussions.
Another way that the company seems to be taking a gamble is in its spin offs. Chesapeake Granite Wash Trust, and the Chesapeake Lodging Trust, both allowed the company to generate much needed cash for operations, and also allowed the previously issued shares to remain undiluted.
However, the sale of real estate is only a temporary fix to a bleeding artery. If the company does not focus on its operations, and force them to generate revenue, then Chesapeake could find itself in trouble again.
However, with all the risks the company is taking, there must be some chance that it will turn its operations around in the near future. After all, one of its directors made mass stock purchases this week. One other item to consider, is the fact that Carl Icahn, famed activist investor, has been steadily building a stake in the company. According to Motley Fool’s, Chesapeake Energy Corporation (NYSE:CHK) is the only company in the energy sector that anyone should be investing in. As for me personally, I am not sure whether I would take the chance or not, but then, what do I know? I am just a writer, not an investing guru.