New stuff!

Before getting into the main topic of today's Blog, a quick note on the silver action of the past week; After what appeared to be a bounce off the support level of 12.50, silver looked poised to rally, then it collapsed. What happened?

I don't know for certain, however it looks to be a failed attempt of the short sellers to bring down the price. I'll know more this week as the details unfold.

The interesting thing here is the action of silver after the close in New York on the 18th. After it tumbled during the day, it shot up, as the overseas markets took control. Which leads me to believe that there are some short sellers here in America that are having an Imodium AD moment.

The "gap up" in price tells me that the rest of the world thinks that silver below 12 bucks is too cheap. I agree. Personally I think silver below 50 is too cheap, but only time will tell. Depending on what happens this week, I may do a mid week post, so keep an eye out.

On to our main topic.

KMP and CHK.

Kinder Morgan Energy Partners and Chesapeake Energy Corp.

Here's how these two companies fit into the macro picture. We all witnessed the collapse of the financial sector, and how this took out many people that didn't deserve to get hit. Chesapeake was no different. In fact the CEO of this company literally put his money where his mouth was and was buying massive quantities of his own stock. He, as did many others, misjudged the severity of this downturn and as a result, got called on margin and lost a ton of his personal wealth. What he saw in his company was value, intrinsic and substantial value. They are a natural gas company with first rate drilling and transportation operations. I've been watching this company for years and the thing that attracted me to them in the beginning was the insider trading activity. Some people believe insider trading is illegal, it's not. It just has to be done under close scrutiny by the SEC and in the full light of day. The thing that flagged CHK for me was the fact that all the top people in this company were buying the shares for their personal portfolios, consistently. This is what you look for under normal market conditions, which we are decidedly not seeing right now. But the fact remains that the people in the best position to see the condition of a company, thought pretty highly of CHK before everything tanked. Now if you are of the opinion that a recovery will come some day, as am I, then we want to buy the stuff that is on sale right now and has real tangible value. A look at their chart(which I encourage you to with all stocks) shows that they have stabilised in the 15 to 20 dollar range. As a trader, I'm a buyer in the 15 dollar range and a seller at 20, but for you buy and holders, this is a great one at 15 bucks. I see some great basing action here folks and that just means that they've consolidated nicely. In addition to that, I believe the price of Nat gas is unusually low and as the price climbs, as I think it eventually will, their P/E ratio of 15.5 should plummet, making this company a steal at $15, but if I wanted a long term play, I still think it's a buy under 20. Oh yeah, their 52 week high was $74, cool huh?

Okay let's look at Kinder Morgan.

A very different story but still a Nat gas company with first class assets in place. Their volatility is quite a bit higher so if I wanted to hold this one, I'd buy the dips and avoid watching it every day. That helps cut down on the Tums. As a trader the volatility aspect only makes it more appealing. Another appealing aspect is it's yield, check this out, 9%! And there is little danger of them losing that yield. They have an interesting tax status that requires them to pay out 90% percent of their profits or risk losing exemptions. (It has been some time since I researched that, so don't quote me exactly on the 90%. There are some timber companies with that same tax status so maybe I'll dust off that research and do a blog on that in the future).

KMP's P/E is a little high at 23.6, but in this environment that just indicates that they've got some pretty good institutional support, and again that will drop as pricing power in gas improves.

Their 52 week high is $60.89 so don't expect a home run on this one. conversely their low is $35.59 which indicates some risk to the downside, but with high yielding investments being a rarity these days, I think they are relatively safe.



Good luck and Godspeed



JT


Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post