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Chesapeake Could Plunge to Single Digits: Pro

Thursday, 26 Apr 2012 | 2:11 PM ET

If you’re an energy trader, MercBlock pro Dan Dicker tells us, Chesapeake is not stock you want in your portfolio.

It seems the company is facing some serious headwinds.

First, published reports say Chesapeake has landed in the crosshairs of the SEC. According to Reuters, regulators have opened an informal inquiry into Chesapeake’s controversial program that granted Chief Executive Aubrey McClendon a share in each of the natural gas producer's wells.

“This is the kind of development that could easily erode shareholder confidence,” explains Dan Dicker on Fast Money's Halftime Report. “Even if an investor wants to buy a nat gas stock, they'll have to ask themselves, should I buy this one?”

"I agree it's a problem," concurs trader Pete Najarian. "Investors will ask themselves if they really know what's going on with this company."

And on top of the regulatory woes, Dicker adds “Lower natural gas prices have also really hurt this company. Chesapeake has to develop leases that Aubrey McClendon has continued to buy for the last 5 years. And they’re going to need asset sales to finance all of it.”

All told, “You’ve got to sell it, here,” counsels Dicker. Considering the negative catalysts, “I think this stock trades down into the single digits.”

However, if he's right and the stock does sell-off, trade cautiously. “The assets are fantastic," he adds. "Someone like Exxon could step in, but at a much low price."

Chesapeake Energy Drama
The FMHR traders discuss their top three trades of the day, including Brazilian oil stock Petrobras hitting its lowest level since last summer. Theo Francis, Footnoted.com and Dan Dicker, MercBloc, also weigh in on Chesapeake Energy's controversial compensation program.





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Trader disclosure: On Apr 26, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Stephanie Link is long AAPL; Stephanie Link is long IBM; Stephanie Link is long KO; Stephanie Link is long DD; Pete Najarian is long AAPL; Pete Najarian is long C; Pete Najarian is long MS; Pete Najarian is long INTC; Pete Najarian is long YHOO; Pete Najarian is long SBUX CALLS; Pete Najarian is long INTC CALLS; Pete Najarian is long COP; Pete Najarian is long PEP

For Andy Busch
Nothing to disclose

For Mark Mahaney
Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of Amazon.com Inc, AKAM
Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of AMZN
Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of EBAY
Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of NFLX

For Paul Coster
JPMS makes a market in the stock of CSTR
J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: CSTR
J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: CSTR
J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from CSTR

For Brent Thill
This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided: NUAN
This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided: NUAN
Within the past 12 months, UBS Securities LLC has received compensation from this company/entity: NUAN

For Dan Dicker
Dan Dicker is short CHK

For Mike Murphy
Mike Murphy is short WHR

CNBC.com with wires.

  Price   Change %Change
CHK
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Halftime Report

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  • CNBC's Eamon Javers reports on Bill Ackman's stake in Allergan. Javers says this is a classic case of insider trading that is not against the rules.

  • FMHR trader Josh Brown thinks Dunkin' Brands looks fantastic technically, while Mike Murphy says investors are questioning the company's massive expansion plans.