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CEO Sell-Offs

Monday, 13 Oct 2008 | 7:29 PM ET

Hedge funds have done some damage to stocks by selling vast positions over a short period of time. It’s enough to drive any CEO mad. But what about when it’s the CEO selling the stock?

Moguls Gone Wild
Not every victim of moguls gone wild is worth buying, says Cramer. Most of them are sells, but if you're careful, Chesapeake Energy can work.

Cramer said such a huge sell-off works for investors no matter who’s doing the dumping. The bottom line is that a company’s stock is going to go down, offering a good entry point for strong company.

Well, it turns out Chesapeake Energy’s Aubrey McClendon sold $569 million of his own stock, and Cramer thinks this one’s a buy, even if CHK did pop over $3 on Monday’s rally. The stock is still $6 lower than its close a week ago.

Chesapeake has no debt coming due until 2012, the company’s meeting its debt covenants, it has expected cash flows of $2.5 billion to $3 billion, and there are sellable assets here.

Sure, natural gas prices have come down, but Chesapeake hedged, and locked in prices for a good chunk of its fourth-quarter production at $3 above the going rate. The company did the same for 2009 and 2010 production as well. There has been talk that Chesapeake’s partners in these contracts might not come through given the decline in nat gas prices, but Cramer doesn’t think so. Chesapeake’s also managed to maintain its production guidance, and the company’s unbooked resource potential is up 33%.

Cramer’s guessing there could be some good news coming out of Chesapeake’s analyst meeting this Wednesday and Thursday, so he recommended buying a quarter of a position Tuesday. Then wait for the stock to drop another two points before buying more. There’s even a chance of a takeover here, too, so CHK could jump for more reasons than just the fundamentals.



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