A corporate governance crisis can be an ideal time to accumulate shares of a company if the core business operations are not threatened. This has happened with Chesapeake Energy (NYSE: CHK
) as insiders have been buying heavily, despite the turmoil at the top. Should oil prices (NYSE: USO
) continue to rise and there be a cold winter, Chesapeake Energy could rise even more along with the price of natural gas (NYSE: UNG
Down 11.91% for the year, Chesapeake Energy has been rocked by corporate governance issues. Now trading around $19.40, it is well below its 52-week high of $29.49. For the last week of market action, Chesapeake Energy is down by another 3.92%. However, it is increased significantly from its low of $13.32 due to the scandal for the last year of trading.
These price declines have enticed corporate insiders to buy heavily on the open market. Archie Dunham, a director, just bought 68,100 shares at $20 each. That lifted his total holdings to 1361884 shares. Richard Davidson, another director, bought 2000 shares in July.
This insider buying is very bullish for a company. Investing legend Peter Lynch has stated that there are many reasons for insiders to sell a stock. These could include the need for cash to buy a home or to pay tuition. But there is only one reason for an insider to buy a stock, according to Lynch, who guided Fidelity Magellan to annualized returns of 29.2% from 1977 to 1990, and that is the expectation that the share price will rise.
The increase in the price of natural gas certainly leads to that for Chesapeake Energy. Both United States Natural Gas, the exchange traded fund for gas, and United States Oil, the exchange traded fund for oil, are up for a variety of factors. A hot weather has resulted in the UNG rising. The USO is up due to the effects of Federal Reserve Chairman Ben Bernanke's Quantitative Easing 3 initiative, among other reasons. The rising price of the UNG is very bullish for Chesapeake Energy, chart below shows.