Boone Pickens Just Cashed Chesapeake Energy Corporation (CHK) Out of Clean Energy Fuels Corp (CLNE): What Should You Do?

If we were to look at share prices over the past few years to compare the two companies, things actually look a lot alike. Share prices have correlated somewhat, driven by the historic low prices we’ve seen the past few years. Using forward PE valuations would also not tell the whole story, as both companies project a forward PE around 14. It’s when we look at gross margins that we see Ultra has operated with consistently higher margins than Chesapeake, somewhere in the neighborhood of 25% higher on average. And as natural gas prices continue to increase on the growth in demand, Ultra Petroleum Corp. (NYSE:UPL) is better positioned to more quickly turn that revenue into income on the bottom line.

Chesapeake Energy Corporation (NYSE:CHK) looks like it’s turning into a real Peter Lynch “turnaround” opportunity, but I’m not convinced that it’s time to jump in. Ultra just seems better positioned to profit, and sooner.

Foolish bottom line

Boone Pickens’ move to add shares is a positive sign. Nonetheless, it’s still very early in the game, and we don’t really know much more than we did just a month ago. I encourage you to open a small position in both Clean Energy Fuels Corp (NASDAQ:CLNE) and Westport if you haven’t already, but I don’t recommend going “all-in” just yet. We need to see how quickly shippers adopt NG-powered trucks before putting more money on the table. And if you’re looking to diversify into E&P, while Chesapeake has made inroads to fixing its business, Ultra Petroleum is already positioned to reward us on the growth in demand for natural gas.

Jason Hall owns shares of Westport Innovations, Clean Energy Fuels, and Ultra Petroleum. The Motley Fool recommends Clean Energy Fuels, Ultra Petroleum, and Westport Innovations. The Motley Fool owns shares of Ultra Petroleum and Westport Innovations and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, Short Jan 2014 $15 Puts on Chesapeake Energy, Long Jan 2014 $30 Calls on Ultra Petroleum, Long Jan 2014 $40 Calls on Ultra Petroleum, and Long Jan 2014 $50 Calls on Ultra Petroleum. Jason is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Boone Pickens Just Cashed Chesapeake Out of Clean Energy Fuels: What Should You Do? originally appeared on Fool.com and is written by Jason Hall.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.