I am retired and take educated guesses on all things financial.

October 28, 2006

October 28,2006: Stocks and Defense

Two stocks, one I own and one I am going to purchase early next week, are recommended for your consideration.

Chesapeake Energy (CHK) has had a modest rally the past few weeks. Winter cometh.
I do not advocate playing this stock as a trade on a cold winter. That horse is out of the barn - if there was a horse there to begin with. This exceptionally well-managed and well respected by peers company is stockpiling assets for future profit. This stock could be a core energy holding for you, so long as management stays intact.CHK reported earnings well above street estimates recently, in spite of 2% lower production as Chesapeake capped some producing wells. CHK raised its production growth target for 2007 from 10-12% to 14-18% and 2008 to 10-14% from 5-7%.
123 operational rigs will be increased to 151 during 2007, which includes 83 CHK-owned rigs. CHK posts 157% organic reserve replacement figures from Jan-Sept. 06, CHK has a 42 YEAR PROVED RESERVE AT 06 PRODUCTION LEVELS. Still, CHK is adding to expand its shale holdings by the hundreds of acres in prime West Texas Barnett-Woodford area. Their production costs due to effective buying and hedging at held in high esteem by those in the industry. The best compliment I can make about Chesapeake Energy is this. I received a cold call from a wildcat driller (I have speculated a bit in oil/natural gas since getting a great tip from a Texan whose son attended the same service academy as mine, thus the cold call list was made). He wanted me to invest in a few ventures as a small partner. I told him I was already into gas with Chesapeake, His response was, in a Texas drawl, if you have them you don't need me.Trading about 32.75, CHK will not a home run make. It will provide you with singles, doubles and a batting championship long term.

Baker Hughes, Inc. (BHI) has been whooped, bad. Now up from its lows, I think that this stock is ready to resume ascending, gradually. Higher margins in Completions/Baker Oil Tools, higher growth rates in completions for wireline and directional drilling, plus a ramp in international growth, including a significant increase in deepwater activity are a good sign. Further share repurchase also will help raise share price. BHI has exited Iran and the Sudan but this should not impact the bottom line whatsoever. Something about bribes/extortion is in that decision, I believe. I really think that BHI could reach the 100.00 a share price by this time next year, maybe even a bit higher. I do not see any measurable downside at this time.

Aero-Defense.A stockpickers dream. L-3 Communications (LLL) reported higher than expected earnings and should continue to do superbly. Goodrich (GR),ditto.
My recommendations based upon contracts to be issued are LLL,GR,British Aerospace (BEAV), Precision Castparts (PCP) and Dyncorp (DCP). As mentioned in a previous post, I like Boeing (BA), but the sizzle has gone out of the stock at present.Hold that one.

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