“Oracle of Oil and Motley Fool’s #1 Value Stock”

I’m a little surprised that of all the email lists I’m on I didn’t get this email … thankfully, a reader did and sent it in for me to review.

This is an ad for Philip Durell’s Inside Value newsletter over at the Motley Fool, and the big tease is that you can subscribe to find out:

“The Motley Fool’s #1 Value Stock to Get Into Your Portfolio Right Now!”

This is a natural gas stock of some kind — and they preface it with a bunch of stuff from the “Oracle of Oil” about the expected great returns from natural gas in the years to come.

The “Oracle,” in this case, is T. Boone Pickens, obviously a hugely successful oil prognosticator and investor — and a colorful character that newsletter ads often like to mention to validate their claims.

And the Fool is no different: “T. Boone is right now putting his most important clients, the type of investors that can handle a $5 million minimum investment, into natural gas investments.”

The big argument for this particular stock from Inside Value right now, however, is insider buying:

“It’s a $32-a-share natural gas company whose own CEO recently went out on the open market — outside his benefits and options package — and bought 6 million shares”

So … that’s most of the clues for this one. A natural gas company whose CEO is an active insider buyer, with a share price around $32 on April 25, and that Philip Durell thinks is undervalued by “between 30% and 50%.”

He thinks this one could double in the next three to five years … so what’s the company?

Well, you can take a trial subscription to Inside Value — I’m sure it’s a lovely newsletter. And I actually own both of the stocks that I know they’ve sent out teaser emails on in the past year, so I wouldn’t blame you if you took that approach.

Or you can stick with the Gumshoe … which is not so lovely, but so much more free.

And thanks to the contribution of my fabulous Gumshoe reader, I can tell you that this company is …

Chesapeake Energy (CHK)

This is far from being a hidden company, of course — it’s a biggie at about $15 billion, and I’d agree that it’s quite cheap at a trailing PE of around 10. I also own Chesapeake Preferred shares in my own account (my opinions are recounted at http://oneguysinvestments.com/labels/CHKpd.html if you’re interested), so you should take whatever I say here with an even larger grain of salt than usual.

And the shares have vacillated around a bit, of course, so they’re no longer at $32 … today they’re just below $34, and they’ve been as low as $28 back in January and as high as $36 just a week or so ago.

I think there are a few interesting things about Chesapeake, even beyond the remarkably consistent and enormous insider buying of CEO Aubrey McClendon … which has been going on for years, and has caused this stock to be profiled not only by the Fool but by Jim Cramer and others.

One thing that I find particularly promising about this company is that they are extremely active hedgers and try very hard to make the company perform very consistently … so they take on some aspects of a financial management company rather than just a volatile gas company.

They’ve already hedged much of their gas production for this year at prices well over the current spot price, and are doing the same thing several years out, and they have been opportunistic about locking in good profits in the past as well. This means they don’t always take full advantage when spot prices peak, but they also don’t generally suffer when they trough. Beyond this hedging, they’ve also at times cut back on production in order to keep prices more favorable, which tells me they’ve got a nice long term focus.

And another thing that really appealed to me back in the post-Katrina days is that this is a land-based driller … so while they benefit from high prices when the Gulf platforms are shut in due to hurricanes, they don’t actually have to shut their own production (which is almost all in the Oklahoma and Texas basin, with a touch in Appalachia).

Finally, they aren’t as much subject to the high day rates of the drilling rig operators because they primarily own their own drilling rigs (and land drilling hasn’t seen quite the price spikes of ocean drilling anyway).

So … I like Chesapeake, too, though I bought the convertible preferred shares because I like the higher dividend. But of course, my opinion is probably worth a lot less than Philip Durell’s … and both of our opinions piled together amount to less than a hill of beans when it comes to what you decide to do with your money, so go forth and look into this one and let the rest of us know if you like it or own it, too.

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Inside Value’s other recommendation that’s still make the rounds, by the way, is for the “ONE Remarkable Stock to Own Now” … which we sniffed out a while ago as being Markel (which I also own, for full disclosure).

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