Chesapeake Energy Corporation (CHK), WPX Energy Inc (WPX): Take Advantage of the Biggest Trend in the U.S

WPX Energy Inc (NYSE:WPX) is a relatively small $4 billion company. I like WPX Energy Inc (NYSE:WPX) for two reasons. First, it’s the most economical company in the industry. It only spends a total of $1.48 per mcf to find and develop a natural gas well. That’s half of the industry’s standard. Second, it’s highly conservative. Unlike Chesapeake Energy Corporation (NYSE:CHK), with its mountains of debt, WPX Energy Inc (NYSE:WPX) currently maintains $1.5 billion of cash (50% of its total market cap) on its balance sheet and trades at less than 75% of book value. It’s now dirt cheap.

Quicksilver Resources Inc (NYSE:KWK) is a small $300 million gas company. Recently, the company announced the sale of a 25% interest in Barnett Shale assets to TG Barnett Resources LP, a subsidiary of Tokyo Gas. This will relieve the company of part of its massive $2 billion load of debt. As of now, the company is cheap and trades at only 0.7 times annual revenues. I believe that given the significant reduction in debt as a result of this deal, there is plenty of upside for the equity part of the business, thereby offering upside for shareholders.

My Foolish Take

Gas prices have strongly rebounded, but shares of gas companies haven’t. It doesn’t take a genius to realize that with higher gas prices, gas companies will make more money, and become more profitable. But the market doesn’t realize that now. By investing in shares of gas companies, you are effectively exploiting this anomaly. Invest accordingly.

The article Take Advantage of the Biggest Trend in the U.S originally appeared on Fool.com and is written by Shmulik Karpf.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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