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Strategies & Market Trends : Contrarian Investing

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To: pcyhuang who wrote (356)	9/26/2006 11:56:39 AM
From: Art Bechhoefer	Read Replies (1) of 4080

pcyhuang--Regarding Chesapeake (CHK), it is also noteworthy that the company actively hedges its primarily natural gas sales in order to protect itself against a fall in gas prices. Thus, even though one would expect CHK profits to fall in the current quarter, owing to lower commodity prices, the key is NOT the actual price of natural gas but the price CHK receives as a result of its hedged positions. CHK profits for the quarter are likely to be better than they would have been without hedging. The hedging strategy worked against CHK last year, which bet on lower natural gas prices than actually occurred, and reported losses from its hedging operations, which reduced total profits. Art

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