I read the Chesapeake Energy Corporation (CHK) quarterly report last week and it continues to boggle my mind why the market is ignoring this stock.  One year ago I thought it was a major bargain and now it is just a ridiculous screaming buy.

Despite low oil and gas prices, the company continues to make a giant profit.  Their sales for the quarter nearly doubled from $1.08 billion to $1.9 billion.  Their earnings more than doubled from $0.46 per share to $1.25 per share.  And their reserves?  Two weeks ago I reported 2005 proven reserves of 7.521 tcfe.  Now their proven reserves are at 8.433 tcfe!  For the 7.521 tcfe number, their future discounted cash flow per share was expected to be $36.55.  Already that's 23% more than the current share price of $28.  But according to their quarterly report, they have an additional 16.4 tcfe of risked unproved reserves!  To be conservative, if we divide that in half and use the same 2005 numbers, they could have an additional $39.84 of future cash flows in reserves.  That totals to $76.39 in future discounted cash flow per share.

The stock has to at least double!  Either gas prices are going to go up, bad weather is going to hit, or the company will be acquired.  There is no way the market can continue to undervalue the stock like this.

Also, CEO Aubrey McClendon just bought another $9 million of stock announced today.   Plus a whole whack of other insiders purchased stock as well.  In light of all this, I disposed of a less sure stock in Westaff Inc (WSTF) to added to my Chesapeake holdings today.