Question:
I bought Chesapeake Energy early in the year when it dropped to $20 per share. It did well through March, but it’s been on a steady decline since the beginning of April. Is this current dip a buying opportunity, or should I cut my losses?
Answer:
Chesapeake Energy Corp. (NYSE: CHK) is involved in considerable controversy surrounding the corporate practice that allowed the company’s CEO to borrow up to $1.1 billion in undisclosed loans secured against the company’s wells. In addition to the concerns about corporate governance, the company is purely involved in natural gas, in which prices have been killed in the market. The volatility in the stock’s price is expected.
This was once a company that met our criteria and was part of our universe. With the current deterioration of their financials, we would not buy this company as a solid long-term investment. If you own shares, we recommend selling.
Question:
I’m looking at Wolverine World Wide. Analyst recommendations are almost evenly mixed for hold/buy. What do you think?
Answer:
Wolverine World Wide (NYSE: WWW) is a financially strong company that designs, manufactures and markets footwear and apparel. Some of the company’s brands include Hush Puppies, Merrell and Patagonia. We see this company as a buy if you do not own it. If you do, we deem it as a hold.
Question:
Given our current economic cycle, do you see the market as fairly valued or undervalued?
Answer:
Right now, we see people holding back as a result of our current political situation. This is why we feel we are not seeing the employment numbers we want. We feel our economy is idling along at a mere 2.2% growth. With a new administration, we believe we would see an influx of capital into the markets. We feel a new administration would bring less regulation, which would in turn, encourage hiring.
Many investors have continued to put their capital to work in the bond market as evidenced by recent mutual fund cash inflows. We believe those investors are acting out of fear as they watched their stock values decline in 2008. The fact that the market has appreciated approximately 25% since early October 2011 has not been enough to force the change to equities. Combine the fear of stocks with the robust growth in corporate earnings, and it makes it easier to understand why the stock market is trading at 13.87 times earnings, approximately 17.5% below its long-term average. We believe stocks remain inexpensive relative to historical levels, and further, we fear for those who remain in bonds. When economic growth begins to drive inflation higher, interest rates will rise. Rising interest rates are likely to drive bond prices lower, leaving those who are cowering in fear of losses to be caught in the crosshairs once again.
At Henssler Financial we believe you should Live Ready. If you have questions regarding your investment choices, the tax experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
