During the uncertain times that we are facing these days, how do we decide what stocks to invest in? A good place to begin is to look at buybacks and insider purchases. Once company that has recently seen a flurry of insider purchases, making it an interesting investment candidate is Allis-Chalmers Energy
(ALY)
has recently seen some active insider purchases. (On Stockpickr, you can see the rest of the most recent insider trades and buybacks).
Company director Alejandro Pedro Bulgheroni has been buying up shares, purchasing 500,000 shares of ALY between $9.77 and $12.64 a share for close to $6 million.
The oil-field services provider slashed its expectations for the fourth quarter, saying that it now expects to report earnings of $5.6 million, or 16 cents a share, significantly missing Wall Street expectations. The Houston, Texas-based company also projected revenues of $147 million for the quarter.
While the hurricane season resulted in weak demand for drill pipe in the Gulf of Mexico, severe flooding in Villahermosa and labor strikes in Argentina also hurt the bottom line, the company said. Additionally, ALY announced an extremely disappointing outlook for 2008, with earnings projected at between $1.35 and $1.45 a share on revenue of between $655 million and $670 million.
The company has had a number of developments that may impact that stock price, both good and bad. First, the company's President and COO, Burt Adams, is due to depart on Feb. 28. No reason has been cited for the resignation, but he will remain on the board.
On the good side, Allis-Chalmers has inked an agreement with BCH Ltd, a Canadian drilling company, to accelerate its entry into the Brazilian oilfield services market. The company is also planning on buying Bronco Drilling
(BRNC)
for roughly $438 million in a cash-and-stock deal.
Analyst Mark Urness of Calyon Securities believes the price is fair and the deal offers long-term strategic advantages to both companies. The transaction will increase ALY's exposure to the land rigs business. "Although the land-drilling business has seen recent weakness with margins declining from the 2006 peaks, they are still very attractive with average return on investment capital for Bronco expected to be close to 47% for 2007," Urness added.
Earlier this month, Wachovia downgraded its rating for ALY from "outperform" to "market perform." Analyst Brad Handler said the company's "ambitious strategy, management missteps ... and the scramble required to make the most of the challenging near-term environment in the U.S. (including the Gulf of Mexico) make us uncomfortable with near-term risk/reward."
Perhaps because of the recent turmoil, some funds have reduced their stakes in the company. You can see a list of investment funds that own the company at Stockpickr.com. A few of the names that have lightened their exposure are:
Oberweis Asset Management is managed by Jim Oberweis, who writes the "Small Stocks" column in Forbes. The fund also owns Id System
(IDSY)
, Kenexa
(KNXA)
and Focus Media
(FMCN)
.
Straus Capital Management is another and also owns PetSmart
(PETM)
, Harris
(HRS)
and Continental Airlines
(CAL)
.
The company has a P/E 7.24 and its shares have declined almost 30% over the past 12 months. However, with ALY still facing a great deal of uncertainly, you may be better off waiting until there is more clarity with this company.
At the time of publication, Raznick had no positions in the stocks mentioned, although positions may change at any time.Jason Raznick is president of Easy Stock Alerts and has been involved with the capital markets for several years. He has worked for Merrill Lynch, Dynamis and Tricap Holdings, a joint venture with Fortress Investment Group. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Raznick appreciates your feedback; click here to send him an email.
