Windfall premiums, massive yields — Elliott Gue

By Travis Johnson, Stock Gumshoe, March 11, 2009

“When Wall Street giants took a tumble, some of our picks’ payouts actually jumped 17% on average.

“They’re still standing tall.

“And right now, you can grab these high-yield gems—some with windfall potential—at ridiculously bargain rates.

“If anything’s better than a monster-size yield, it’s a monster-size windfall. And why settle for just one when you can have both?”

That’s how the ad launches for Elliott Gue’s Energy Strategist newsletter — and he’s got some teasers to get our mouths watering, too.

As you might expect, these stocks are all in the energy sector … but unlike some, they’ve all got high dividend yields.

The first one is a convertible preferred stock — Gue tells us that these were mostly held by hedge funds, and that …

“… the retreat of these once-vaulted fund managers leaves the “preferred” gates wide open for the rest of us. And these premium investments are just sitting there ripe for the taking.

“You see, with corporate bonds and preferreds, you get to have your cake and eat it, too.

“Because right away, you get great, steady yields up to 12% and more.

“And, because you’re buying them on the cheap, you also get the great, long-term upside from these choice, growth investments. Talk about playing both sides of the Street.”

Convertible bonds and preferred stock aren’t new to these pages, of course — several high profile “teaser” ad campaigns have pushed them in recent months, and they’ve been all over the financial press, too. Convertibles are widely seen to be a way to dip your toe into the water without buying somewhat riskier common stock, and still get a nice income stream that’s often just slightly lower than similar corporate bonds. If you want to learn more about these, you can check out my earlier articles on them here.

But this isn’t a teaser for a bunch of convertibles, or for a closed-end fund, as those previous ones were … this focuses on just one company’s convertible preferred stock. So what is it?

Clues, please!

“Right now, one of my favorite picks is just such a potential triple play. This company has in abundance what two cash-heavy corporate suitors have in short supply—and are desperate to get.

The company is a US oil & gas producer sitting on tons and tons of prime natural gas reserves. Over 12 TRILLION cubic feet of it. So much, in fact, that at least two of Europe’s oil and gas majors are salivating over the prospect of a takeover bid for this plum.

“The reasons are simple: while the price of natural gas is off the charts in Europe, it’s abundant and dirt cheap here in the US.

“And, European majors have another reason for scrambling after US natural gas—mistrust of Russia. No doubt you’ve heard that Russia yanked Europe’s natural gas supply in the cold dead of winter—yet again.”

There are some more good clues for this one … their credit line doesn’t expire until 2012, and …

“They’ve also built the best oil and gas reserve asset base in America, bar none. They shrewdly snapped up stakes in every prime US oil and gas basin and some really outstanding unconventional plays, as well.

“So, I’m suggesting that my readers scoop up this company’s preferred convertible shares.”

Who are we dealing with here? Well, we throw those details into the Thinkolator — 2012 expiration, big reserves of 12 trillion cubic feet of natural gas, including unconventional plays, and we find that this is almost certainly …

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Chesapeake Energy. Probably the biggest natural gas company in the US, and a huge lightning rod over the last couple years — thanks, in part, to Aubrey McClendon, their high profile CEO who has been collaborating with T. Boone Pickens on his natural gas-focused “Pickens Plan,” and who has been so enthusiastic about his own stock in recent years that he borrowed tons of money to buy shares … and got a massive margin call back in October and had to sell close to 30 million shares. He still owns a little bit, but his holdings as of January are down to abou