Insiders should be very reluctant to buy more shares of their company’s stock, since it leaves them more exposed to company-specific events and the principles of diversification state that it is rational to reduce this exposure. The exception would be if an insider is particularly bullish, and so insider purchases can serve as strong signals of this sentiment. We especially find consensus insider purchases interesting; stocks bought by multiple insiders tend to outperform the market (read our discussion of studies on insider purchases). Here are five energy stocks that multiple insiders have bought in the last three months:
Several insiders have been buying shares of Halcon Resources Corp (NYSE:HK), an oil and gas exploration and production company with most of its assets in the onshore U.S. (including acreage in Texas, Oklahoma, and Louisiana). See which insiders have been buying the stock. Halcon is down 30% in the last year, and we’d guess that many of these insiders believe that the market has overreacted to falling natural gas prices. While production increases have been good for revenue, the effect on earnings has not been as positive. Halcon trades at 15 times consensus earnings for 2013.
Drilling equipment and services company Weatherford International Ltd (NYSE:WFT) is another energy stock that insiders have been buying in the last few months. Billionaire Dan Loeb’s Third Point was also bullish on Weatherford in the third quarter of 2012, increasing the size of its position by 8% to a total of 4 million shares (check out Loeb’s stock picks). At a market cap of $10 billion, Weatherford’s current-year P/E is 13. Wall Street analysts expect earnings growth to continue over the next several years, generating a five-year PEG ratio of 0.7. We would note that earnings have been down, and also that the company is dependent on drilling activity and so is highly correlated to the broader market with a beta of 2.1.
Three more energy stocks insiders love:
$1.3 billion market cap energy services company Key Energy Services, Inc. (NYSE:KEG) had several insider report purchases of the stock in November. Because much of Key’s business is tied to drilling as well, it also carries a beta of 2.1 and its trailing earnings numbers are fairly low in the context of its market cap. Analysts expect a recovery here but the current-year P/E of 17 still represents a sizable premium to Weatherford. MHR Fund Management, which is managed by former Carl Icahn employee Mark Rachesky, owned over 17 million shares of Key at the end of September (find Rachesky’s favorite stocks).
Apache Corporation (NYSE:APA) is one of the market leaders in natural gas, and the $33 billion market cap global energy company has struggled over the last year due to pricing: in the third quarter of 2012, net income fell 82% from its levels a year earlier. We have recorded a number of insider purchases at the company. Boykin Curry’s Eagle Capital Management and Ric Dillon’s Diamond Hill Capital were two funds which reported over $100 million of the stock in their portfolio in their most recent 13F filing. Apache carries trailing and 2013 P/E multiples of 13 and 9, respectively- again suggesting an expectation that business will be better this year.
Four Board members were buying shares of Basic Energy Services, Inc (NYSE:BAS); while the most recent round came at prices closer to $9, some insiders have bought at prices higher than the current $13 over the last year. See a history of insider purchases at Basic. The market capitalization is only about $520 million, but close to a million shares are traded per day. Basic is another services company, and 20% of the outstanding shares are held short as many market players consider it overvalued. While its price is low in terms of historical performance- whether we consider P/E or EV/EBITDA multiples- the sell-side expects the company to be unprofitable this year.
Disclosure: I own no shares in any stocks mentioned in this article.
