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An Insiders’ Guide to Buying The Pullback
By Michael Brush
Exclusively for InvestorIdeas.com
March 08, 2007
There’s good news and bad news from the insider front. The good news is that insiders have stepped up their buying over the past few days in a big way – a bullish sign.
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And the bad news? Overall sentiment – a measure of buying compared to selling -- has only bumped up to just below the average levels seen over the past three and a half years, says Ben Silverman, research director at InsiderScore.com. That’s not a great sign for the overall market – but at least it’s better than the bearish tone they’ve been setting all year so far.
While insiders are mixed overall, they’re decidedly bullish on a multitude of names in the past few days. To find the best ones, I looked for significant purchases and screened out any companies where there has also been a lot of selling.
Here’s a quick look at a dozen companies where insider buying has been robust.
Food and Entertainment
DreamWorks Animation (DWA) has been weak in part because it had to take a big write down on "Flushed Away," a movie about rats in a sewer. But at least one director thinks the weakness is overdone, judging by a recent $1.3 million purchase of stock at $26.55. Perhaps that’s because the studio plans to release "Shrek the Third" on May 18, and “Bee Movie” in November, a tale of a neurotic bee created by Jerry Seinfeld.
Dean Foods (DF) is the nation's leading dairy processor with around $10 billion of sales. This vendor of popular products like Silk Soymilk and International Delight coffee creamer – and also milk – has been downgraded by at least one analyst because of concerns about competition and limited potential upside. But Alan Bernon, a director and the president of the company’s Dairy Group, disagrees. He recently purchased $5.8 million worth of the stock at an average price of $46.63.
Energy
Petrohawk Energy (HAWK) is a natural gas takeover candidate I’ve written about a few times in the past year because of the strong insider buying. The company is lead by chief executive Floyd Wilson who’s lining it up for a take out – a feat he’s already pulled off twice in the energy sector for decent premiums. It’s not clear when a take out might occur, so you’d have to be patient with this name. But clearly Wilson thinks there’s upside in his stock. During the recent weakness in the name, he bought $1.2 million worth at $11.60.
McMoRan Exploration (MMR) does exploration and production in the Gulf of Mexico and along the Gulf Coast. In the recent weaknessJames Moffett, who is co-chairman of the board, purchased $6.5 million worth of the company’s stock at an average price of $13.03. The stock shot up to $14.30 on the news – I’d wait for a retreat.
Whiting Petroleum (WLL) does exploration and production in West Texas, the Rocky Mountains, along the Gulf Coast, and elsewhere in the U.S. The stock fell to $36 from $44 recently on news that fourth quarter profits dropped by 27% due to higher costs and lower energy prices. Chief executive James Volker thinks the selling is overdone, because he and a director bought $330,000 worth of stock at about $36.80 in the decline.
Oneok Partners L.P. (OKS) is a natural gas processing and pipeline company that operates in the Midwest. Oneok didn’t pull back that much in the recent weakness, but it is trading well below 52-week highs of $67.25 hit in mid-February. In the weakness, director David Kyle bought $193,000 worth of stock for $64.33. What’s interesting is that he purchased $242,000 worth at $48.5 last May, so he keeps buying on the way up. The limited partnership pays a healthy 6.1% dividend yield.
National Coal (NCOC) mines coal in east Tennessee and southeastern Kentucky. The stock has been weak all year, but it perked up recently when chief executive Daniel Roling purchased $930,000 worth of the company’s shares at $4.65.
Technology
Zhone Technologies (ZHNE) sells telecom equipment. The stock has been weak for over a month, but it perked up recently when chief executive Richard Kramlich bought $1.2 million worth at $1.21. Several big owners also stepped up recently and purchased $2.1 million worth.
Bitstream (BITS) offers software that helps users do things like select font and typeface in electronic documents, and browse the web on wireless devices. The stock got hammered recently when it posted a 20% decline in fourth quarter profits. Sales grew by a healthy 20% but costs went up even more – by 32%. Insiders think they can fix the imbalance. They recently purchased $400,000 worth of the stock for $6.70 to $7.05 a share. The company looks like it has the financial strength to ride out its problems because it has about a dollar a share in cash and no debt.
Real Estate
Two real estate investment trusts have seen big buying recently. One is Saul Centers (BFS), where chief executive Saul Francis bought $5.9 million worth of stock on February 28 and March 6 for about $58.20. Has been a regular buyer since November -- purchasing around $13 million worth of stock since then. The company manages shopping centers and office properties, in and around Washington, D.C. and Baltimore.
At Inland Real Estate (IRC), insiders have purchased $2.1 million worth of stock since February 27, for prices between $18.30 and $19.30. The company operates shopping centers in wealthier neighborhoods around Chicago and Minneapolis. Inland Real Estate pays a 5.3% dividend yield.
JER Investors Trust (JRT) offers specialty finance products in commercial real estate. The stock has pulled back to $18.80 from $20 in the market weakness. Chief executive Robert Joseph bought $2.6 million in the pullback, most of it at $18.86 to $19.09.
The bottom line: We haven’t seen this much buying in a long time. These names offer a chance to diversify your portfolio, which is always a good idea.
Disclaimer
At the time of publication, Michael Brush owned shares of Petrohawk Energy. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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