Energy Insiders Head for the Exits

Until very recently, buying energy stocks seemed like a sure thing. Share prices kept rising as oil companies reaped record profits off sky-high gasoline and crude prices.

But even as crude futures were hitting all-time highs this summer, energy insiders were selling their shares in record numbers, according to a study by the Leuthold Group, an investment research firm in Minneapolis. Sales hit an all-time high in May among a group of 142 energy companies the firm follows, and they have remained high since then.

In July and August, Exxon Mobil (XOM Quote) executives have sold more shares than in the previous two quarters combined, according to Thomson Financial. In July, executives at refiners such as Holly (HOC Quote), Frontier Oil (FTO Quote) and Sunoco (SUN Quote) dumped more shares than at any time since the Leuthold fund started tracking them seven years ago. (Bloomberg previously reported the fund's findings.)

"They're people you should tend to follow, rather than to take the opposite of their trades," says Andy Engel, a senior research analyst who co-manages the $2 billion (LCORX Quote)Leuthold Core Investment fund. "What we are seeing is it's time to be out of the area."

Presuming executives know their company and industry better than outsiders, investors should pay heed to their actions. Engel certainly has: Since February 2004, he has ratcheted back the fund's holdings in energy from 15% to around 1% on the basis of insider trading levels, growth prospects, valuations and other factors. A lot of the fund's money has instead gone into cash to take advantage of high interest rates.