With a half-hour left to go in today’s trading session, the Dow is down 400 points to 9,225 but there are some pockets of strength in certain sectors. Chesapeake Energy (CHK, $26.10, up $3.15) is having a monster day as Wall Street seems to believe that Chesapeake and other natural gas producers will thrive because of Barack Obama’s historic victory.
The theory is that a Democrat-led Congress will lead to huge tax breaks for petroleum producers and that Obama will likely push for use of compressed natural gas (CNG) in automobiles. How long and how fast it takes for CNG stations to start popping up around the country remains to be seen but they are coming.
Companies that are in this field will likely see incentives to install CNG pumps at stations which should encourage Americans to buy CNG-powered cars. CNG is an exceptionally efficient fuel for return-to-base fleets, as analysts believe it produces 50% to 70% fewer pollutants and saves $5,000 to $20,000 in fuel costs annually per vehicle than diesel, the fuel most commonly used today.
There are a couple of pure-plays on this sector like Clean Energy Fuels (CLNE, $7.35, down $1.74) and Sinoenergy (SNEN, $3.22, down $0.13) but they are both trading lower today after California voters struck down Proposition 10, which would have paid rebates for fuel-efficient cars and cars that run on natural gas. T. Boone Pickens, the company’s founder, is obviously not having a good day. Not only is the stock taking a hit, he is the one who paid for nearly all of Proposition 10’s $22.5 million campaign fund.
Meanwhile, Chesapeake is getting some action despite the weakness in the energy sector today, amid reports that it could be a takeover target. I mentioned the stock back in October and at the time it was good for a quick trade as it made a run from $20 to $24ish.
The November 25 calls (CHKKE, $2.75, up $1.90) were trading for $2.10 at the time of the blog and I said the stock had a chance of getting to the $24-$27 range quickly. It did and faded but now the stock is gaining momentum again. The November calls have hit a high of $3.60 today and I encouraged many of you to keep holding them.
The January 25 calls (CHKAE, $3.90, up $1.15) which were profiled at $3.70 and they are only slightly higher than where they were profiled at. They hit a high of $5.00 when Chesapeake shares hit a high of $26.95 earlier in the day. It’s hard to say just how serious the takeover talks are but it does show that others think this stock is cheap.
Rick Rouse
Rick@OptionsMentoring.com
