When insiders are buying their own stock, investors need to sit up and take notice.
Although not a guarantee that a stock will rise - nothing is - insider trading activity reflects confidence in a company's potential by the people who should know best. In particular, insider buying can be an early indicator of change in fortune for a stock that has been beaten down.
And because inside stock buyers are in it for the long term - they're not permitted to make short-term profits - they only buy when they feel reasonably certain of their company's longer-term prospects.
So while such companies may not offer a quick profit, they're usually worth a hard look for investors with a longer time horizon.
Lately - within the past month - insiders at five energy companies have been buying up shares of their own stock.
They are:
ATP Oil & Gas Corp.: (Nasdaq: ATPG): ATP is a relatively small oil and gas producer (market cap: $371 million) that operates in the Gulf of Mexico and the North Sea. It has seen very active insider trading in the past month, with the CEO buying 65,000 shares over two days and another director buying 100,000 shares. ATP has been beaten down this year - it's off more than 56% -- so the insiders apparently see a turnaround ahead. This stock closed yesterday at $7.34 and has a one-year average target price of $10.75.
Chesapeake Energy Corp. (NYSE:CHK): Chesapeake is a leading natural gas company with interests in many of the major U.S. shale fields. In early November, a director bought 100,000 shares, and the CEO just last week bought 11,000 shares. Although essentially flat on the year at about $25, Chesapeake traded as high as $35 in February. With a book value of $20.69 and a price/earnings (P/E) ratio of just 13.3, Chesapeake has substantial upside potential. It also has a dividend yield of 1.41%. It closed at $25.34 yesterday and has a one-year target of $37.63.
Inergy L.P. (NYSE: NRGY): Inergy is a retail and wholesale propane supplier with a growing midstream business that includes four natural gas storage facilities. In November, the CEO bought shares on three occasions for a total of 15,000, while the president bought a total of 45,000 shares in two separate purchases. The stock has been battered lately, falling 32% just since July, and its P/E is a startling 86.83, which makes the insiders sudden interest all the more compelling (the recent flurry of purchases were the first by Inergy insiders in nearly a year). Inergy also has another big incentive for investors - an 11.73% dividend yield. It closed yesterday at $24.18 and has a one-year target price of $31.50.
Whiting Petroleum Corp. (NYSE: WLL): Whiting is involved in exploration development and production of oil and natural gas. One of the directors bought 1,000 shares last month, after having bought 1,000 shares in August. Just as notable is the 10.26% passive stake in Whiting that hedge fund giant Wellington Management reported on Nov. 10. Whiting is down more than 20% on the year, but has bounced off an October low of about $31 and has a fairly low P/E of 11.37. Whiting closed yesterday at $46.51, and has a one-year target of $63.55.
EXCO Resources Inc. (NYSE: XCO): EXCO is engaged in the exploration, exploitation, development, and production of oil and natural gas in onshore North American properties. A director bought 4,000 shares last month, but that followed a period of furious buying - more than 1.7 million shares -- by other insiders in September and October. EXCO is down 38% on the year but has rebounded lately. It's also been discussed as a possible takeover target. EXCO has a dividend yield of 1.36%. It closed yesterday at $11.91 and has a one-year price target of $17.00.
But if you're looking for a top pick among energy stocks with recent insider buying activity, you'll want to check out Money Morning's premium service, Private Briefing.
In mid-September Private Briefing recommended an oil and gas exploration company that has been so beaten down in recent months that it's not far from its 52-week low. But the company's director bought 18,100 shares that same September day.
To find out more about this compelling oil play, click here. Once you sign up, just pull up the Nov. 29 report titled "The Secret "Buy' Signal You Should Never Ignore."
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.