by Ethan Roberts | February 23, 2012 11:40 am
When large, well known stocks in the S&P 500 index are performing solidly and have also shown significant buying from company insiders, it’s time for investors to sit up and take note. Recently, three energy-related stocks in the S&P 500 have met these criteria.
As I noted in “A Guide to Profiting from Insider Transactions,” insider buying is usually more significant than insider selling, because while insiders may sell for various reasons, insider buying is most often an indication that corporate executives feel strongly that their company’s stock will be trading higher in the near future.
With this in mind, let’s take a look at three stocks that warrant our attention:
At Hess (NYSE:HES), Chairman and CEO John B. Hess bought just under $5 million of Hess stock at the end of January at $54.79 per share. Hess had previously purchased approximately $10 million worth at around $57 in September 2011. All indications are that this insider believes strongly in his own company. Hess stock closed above $65 on Wednesday.
In fact, Hess has a pretty good track record with buying stocks at the right time. At the end of November, he also bought $1 million worth of KKR (NYSE:KKR) stock, at $11.79, very close to the actual bottom. That stock has since risen about 28%, closing at $15 on Wednesday.
While the dividend yield on HES is a rather paltry 0.60%, the P/E ratio is only 13, and this stock has been as high as $87.40 within the last 52 weeks. Looking at the two-year weekly chart, HES appears to be breaking out of a recent consolidation pattern, and it may still have room to run.
The only caveat is the very real potential for the 50-day moving average to cross below the 200-day moving average (i.e. the “death cross”), which is typically seen as a negative for stocks.
The second stock on this list is Dominion Resources (NYSE:D), an electric utility and natural gas company that has been on a tear in the past few years. Yet, despite the move higher in price, several insiders have been buying up vast amounts of shares in recent weeks.
On Feb. 10, Director Mark Kington purchased 25,000 shares at $49.82, for a total cost of over $1.2 million. One week earlier, Kington had purchased about $250,000 of Dominion stock.
Director Robert Jepson was also quite active within the last 10 days, buying over $500,000 worth of D at $50.29 per share.
When one company insider buys shares, it’s certainly notable. But when several insiders are buying large numbers of shares over a short period of time, investors should hear loud bells going off. On Jan. 31, four different company insiders, including Kington, combined to purchase over $881,000 worth of company stock.
Are these company insiders alerting us that natural gas prices, which have been beaten down over the last several years, will be rising in the near future?
Dominion Resources also has a current dividend yield of 4.20% at the recent price of $50.14. The P/E ratio is at 20.4. The three-year weekly chart demonstrates a classic rising trend line that seems to show no signs of faltering any time soon. With the recent pull back from $53, Dominion looks like a solid continuing play.
The third company with “energized” insider buying is oil and gas producer Haliburton (NYSE:HAL). On Feb. 3, Director Murry Gerber purchased 30,000 shares of HAL stock at $36.84 per share, for a total of over $1.1 million. However, Gerber is a fairly new board member, so that somewhat tempers my enthusiasm for his first purchase since becoming a director. And unfortunately for him, those shares could have been purchased for as little as $31 as recently as December 2011.
In fact, it was quite an interesting week for Gerber, who also purchased over $1.1 million worth of BlackRock (NYSE:BLK) stock the day before.
It’s been a roller coaster ride for Haliburton, which provides various products and services to the energy industry for exploring, developing and producing oil and natural gas worldwide, in the past year. After peaking in August around $57 per share, the stock pulled all the way back to below $28 in October, but has fought its way back to above $38 in February.
HAL has a current P/E of 12.02 and, but a meager 1% dividend yield. As with Dominion, if natural gas and oil prices continue to rise, this stock should benefit. However, as the one-year daily chart shows, there’s some overhead resistance at $38 and then again at $40. For that reason, I would look for a pullback to between $35 and $35.50 before purchasing HAL.
It’s also comforting to know that one would be buying shares cheaper than the company insiders!
Investors have a number of reasons to like energy stocks right now, including geopolitical concerns in the Middle East, predictions of gas prices over $4 a gallon and recent decisions by natural gas producers to cut supplies. With insiders of energy companies snapping up large chunks of shares, it provides an additional spark of motivation for investors to get involved.
Remember that no stock should be bought or sold simply because of insider buying or selling. You should also evaluate all investment decisions according to fundamental and/or technical analysis. However, if your analysis indicates that a stock’s future is positive, insider buying becomes one more significant reason to consider adding that investment to your long-term portfolio.
As of this writing, Ethan Roberts doesn’t own shares of any of these stocks.
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