First Carl Icahn, Now Former Warren Buffett Co-Manager Lou Simpson Invests in Chesapeake Energy

Corporate activist investor Carl Icahn timed his 6% investment in natural gas driller Chesapeake Energy (CHK) almost perfectly earlier in 2011, buying in the low 20’s and selling in the mid 30’s a few months later after extracting a publicly announced debt reduction plan out of management. Now, with the stock back down to prices even lower than where Icahn originally bought, Lou Simpson (former GEICO executive and Warren Buffett number two investment manager at Berkshire Hathaway (BRK)) has bought 200,000 shares in the energy producer.

Simpson, long considered to be a possible Buffett successor despite only a small age difference, retired from Berkshire in 2010 but remains active as a director on three public company boards of directors. Chesapeake is one of the three and the latest. Interestingly, in recent months Simpson has sunk more than $5 million of his own money into Chesapeake stock, at prices in the high 20’s. This is a rare move for Simpson, who typically does not make moves in the public eye like this. As a director though, he must update his holdings in Chesapeake whenever changes are made. I find this move especially telling because in the case of the other two public companies he is involved with, he has largely been given stock options in return for his service, whereas direct open market purchases are rare for him. Often times new directors make small investments (say, a few thousand shares) to show public support, but Simpson has made two separate purchases of 100,000 shares each, for more than $5 million in total.

Now, some may point out that Simpson is worth a heck of a lot of money, so $5 million to him may be peanuts relatively speaking. And I can’t argue that point, but given Simpson’s investment savvy, coupled with the fact that he has not done this with the other companies he serves, I think it is worth noting and is likely due to his belief that the stock is actually quite attractive.

CHK shares, as mentioned previously, are down a lot in recent weeks, as natural gas prices have sunk to $3 and the company continues to spend more on exploration and production than it brings in (to the detriment of equity holders), but it is now even cheaper than it has been previously. And given that Icahn was very successful with his first investment in CHK, I would not be surprised if he got back in, now that the stock price has given back all of the gains he booked, and more. Chesapeake investors, myself included, have been frustrated a lot in recent years, but these recent buys by Lou Simpson strengthen the case that giving up now might be a mistake.

Full Disclosure: Long shares of CHK at the time of writing, but positions may change at any time

Ron Johnson’s First Target at J.C. Penney: Martha Stewart

News reports are coming out this morning that J.C. Penney (JCP) is set to buy a 17% stake in Martha Stewart Living Omnimedia (MSO) for $38.5 million. Not only is this Ron Johnson’s first big step as CEO, it also sheds light on his strategy with the retailer now that he has moved on from Apple to a different kind of retailing operation. There is no doubt that Johnson will be focusing on brands and how to get the best assortment of products in his stores to attract more traffic. He has always said that the reason Apple stores are successful is less about the design of the store and more about the actual products they offer.

Martha Stewart is the perfect candidate for JCP given her mass following. And the fact that her company doesn’t make a profit makes for a relatively cheap investment (less than $40 million is peanuts for a multi-billion dollar retailer). A stronger relationship with Martha Stewart should yield huge returns on this small monetary investment.

Ron Johnson’s track record building out the Apple store concept makes JCP an interesting stock to watch. Given the current price in the low 30’s and the fact that a revamp of the company’s stores is likely to take a lot of time as well as a lot of money, I would not expect financial results to accelerate quickly. This is likely more of a 2013-2014 story from an earnings and sales perspective (not 2012).

In fact, hints of increased corporate expenses as Johnson implements his plan could pressure earnings short term and cause a negative reaction on the company’s shares. At that point, investors might want to take a strong look at the stock if the price is right. In the mid to high 20’s I would be intrigued (the stock closed yesterday at around $33).

Full Disclosure: No position in JCP at the time of writing, but positions may change at any time.