The Trading Floor

[mick]

part #4 ,,,shortages,,,04/20/04
One of the Best Stocks to Own Today--Revealed Here!

This crisis in natural gas prices does not just affect your heating or cooling bill.

By April or May, electricity prices could begin to increase rapidly in every region of the country in which natural gas-fired power generation is important. Peak prices during the summer months could rise 50% or more compared to last summer even in regions in which there is substantial excess generating capacity.

For the U.S. economy as a whole, the negative repercussions could be severe. Substantial energy price changes could affect our whole economy. Just consider the recent California energy crisis as living, breathing proof of this very real risk.

And this upward shift in the price curve for both electricity and natural gas is NOT likely to be short-lived. Instead, it marks the earliest stage of a transition period that may last for much of the rest of this decade. This transition period will leave the U.S. with only one choice: Energy users must shift to new, less conventional sources of supply to meet the rapidly growing demand for natural gas as a fuel to generate electricity. These could come via massive increases in imports of LNG, imports of natural gas from the Arctic Circle in Canada through the MacKenzie Delta Pipeline, massive expansive in ultra-deepwater drilling in the Gulf or other sources.

Unfortunately, NONE of these new sources of supply can be brought on-line rapidly enough to avoid the near-term shortfall in supply that we've been discussing so far.

The best-case scenario -- at least for investors -- is that well-positioned energy companies will make out like bandits after a 20-year dark age for natural gas exploration.

One of my favorite picks right now is Chesapeake Energy (CHK). I've been looking for natural gas exploration companies that are (a) technology leaders, (b) have with the capability of expanding their production significantly, and (C) have more than 60% of their gas unhedged.

All my contacts in the natural gas field say the same thing -- Chesapeake Energy is the play. They have the management, the technology and growing production of natural gas. CHK has interests in nearly 11,000 producing wells in the mid-continent region of the United States and in Texas, New Mexico, Montana and North Dakota, and the company increased its proved reserves by 24% during 2002.

Our main strategy for drillers who are focusing on gas is to buy those that were wounded but not killed by the post-Enron price plunges with the idea that they would hit three specific points:

Increase cash flow by 50%-100% with gas prices in excess of $4.50-$5 now locked in for the next few years at least.

Massively improve the balance sheets with new capital and refinanced debt.
Increase in value by 100% or more in this process by next year.
Chesapeake Energy (CHK) is on the other side of the spectrum -- it is magnificently financed and is using its strength to buy more and more drilling areas at very attractive prices.

A glance at CHK's quarterly operating figures vs. the year-ago period tells the story. We see rising production and prices in their natural gas and oil products while many expenses have held their ground and net income has grown from a $30 million loss to a $70 million profit. Buy it below $12 and look for it to double or better over the next 12 months.

Remember, you can get the complete list of winners and losers from the natural gas crisis by trying ChangeWave Investing risk free for 90 days. Click here to get these stock picks online today, before winter hits hard and the stocks really start to move.

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