Is Chesapeake Energy a Long-Term Investment?

T = Trends Support the Industry in which the Company Operates

Chesapeake Energy and its peers have been beaten up this year. As noted, stock prices have come down across the board after a mild winter and a steep drop in natural gas prices. The good news is that prices seem to have bottomed out in April. The wellhead price for natural gas came up over 51 percent between April and August and projections for 2013 put the average price per MMBtu at $3.49 in 2013.

General Electric (NYSE:GE) had some bullish comments about natural gas when it announced the installation of its new Jenbacher natural gas-powered engines on November 27.

“Unconventional gas is quickly becoming the most abundant source of natural gas in the U.S. and now accounts for about a quarter of U.S. natural gas production. By 2035, half of U.S. natural gas will come from unconventional sources, according to the U.S. Energy Information Administration,” reads the company’s announcement.

Conclusion

The trends seem to support the industry but not the company. North American natural looks like it will generate strong plays and increased revenue for stable, smart companies who will be able to resist tough economic headwinds and a rapidly evolving energy market. As it stands, Chesapeake does not look like one of those companies.

The company bears a prohibitive amount of debt and will have to fight tooth-and-nail in order to recover in the current economy. To add to its trouble, its competitors are in a much better relative position.

Because of this and the metrics mentioned above, Chesapeake Energy is a STAY AWAY in the near term. Unless you’re willing to assume a huge amount of risk, the company does not look like a safe place to try and grow your money.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.