Is Chesapeake (CHK) a Worthy Investment?

ClearBridge Investments, an investment management firm, published its “Dividend Strategy” first quarter 2022 investor letter – a copy of which can be downloaded here. The ClearBridge Dividend Strategy outperformed its S&P 500 Index benchmark during the first quarter. On an absolute basis, the Strategy had gains in three of 11 sectors in which it was invested for the quarter. The main contributors to Strategy performance were the energy, industrials, and utility sectors. The materials, IT, and consumer discretionary sectors, meanwhile, were the main detractors. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.

In its Q1 2022 investor letter, ClearBridge Investments Dividend Strategy mentioned Chesapeake Energy Corporation (NYSE:CHK) and explained its insights for the company. Founded in 1989, Chesapeake Energy Corporation (NYSE:CHK)  is an Oklahoma City, Oklahoma-based natural gas liquids company with a $12.0 billion market capitalization. Chesapeake Energy Corporation (NYSE:CHK)  delivered a 46.25% return since the beginning of the year, while its 12-month returns are up by 104.29%. The stock closed at $94.36 per share on April 14, 2022.

Here is what ClearBridge Investments Dividend Strategy has to say about Chesapeake Energy Corporation (NYSE:CHK) in its Q1 2022 investor letter:

“In the early days of the invasion, we made two measured changes to the portfolio based on longer-term fallout we anticipate from Russia’s invasion of Ukraine. First, we initiated small positions in U.S. natural gas producers Chesapeake (NYSE:CHK).

Given its superior environmental profile compared to other fossil fuels, we have long favored natural gas in our energy holdings. Combustion of natural gas releases 50% less CO2 than coal, 25% less CO2 than gasoline and dramatically less particulate and pollution, per the U.S. Energy Information Administration. With the advances in shale production this century, the U.S. has become a natural gas powerhouse with some of the lowest-cost and largest reserves in the world. But because natural gas is difficult to ship across the ocean (it must be liquefied, which requires expensive infrastructure on both ends of the voyage), America’s gas bounty has ironically proved a burden for U.S. producers.

The surplus of natural gas in North America has resulted in low prices and weak earnings for gas-focused producers. Exports, while growing, are restrained by the high cost of building export infrastructure. Europe, in a Faustian bargain, has relied on abundant, inexpensive Russian gas transported by pipeline.

Despite the abundance of low-cost resources and a superior environmental profile, the investment case for U.S. natural gas producers was previously unfavorable due to oversupply in the domestic market.

In the days preceding the invasion, we were quick to realize the war would change global energy flows. Europe is shifting away from Russia and toward new sources of imported liquified natural gas. We purchased our stakes in Chesapeake to capitalize on these trends. The recently announced energy pact between the U.S. and Europe represents an early positive datapoint in support of this investment thesis.”

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Our calculations show that Chesapeake Energy Corporation (NYSE:CHK) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Chesapeake Energy Corporation (NYSE:CHK) was in 50 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 44 funds in the previous quarter. Chesapeake Energy Corporation (NYSE:CHK) delivered a 34.61% return in the past 3 months.

In March 2022, we published an article that includes Chesapeake Energy Corporation (NYSE:CHK) in the 5 Best Crude Oil Stocks To Buy Today. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.

Disclosure: None. This article is originally published at Insider Monkey.