There's no agreement on the near-term direction of energy prices, which now stand at just over $21 per barrel. Some pundits argue for a drop to the mid to low teens resulting from shrinking global demand due to recession. Others see a rise to $30 as OPEC controls its output and supply disruptions are deemed possible in the wake of the war on terrorism. Similar uncertainty surrounds the price of natural gas.
So with all these ifs and buts about the direction of oil prices, what information can give investors guidance in this industry? For our money, insider activity at energy firms has been a great indicator of the long-term direction of the industry's stocks.
We recall insiders buying heavily in 1998 as oil prices fell to $18 per barrel, then $15, then $10. The popular press sniggered loudly as insiders kept averaging down in their stocks throughout 1998. Stories in the mainstream deemed insiders "clueless" as they sat on losing positions in the beginning of 1999.
By spring of 2000, though, this clueless group had pocketed millions in profits as the price of oil returned to and surpassed historic norms. No more sniggering.
So what are insiders doing now? Over the past two months, I have highlighted nine energy-related firms in my weekly newsletter,
, that had impressive insider buying. Most of these firms had clusters of buyers, many of whom were adding significantly to their holdings. And many of the insiders buying also proved prescient at trading their shares in the past. All nine stocks are up since I featured them, but there is still more upside to be had. Specifics on these companies are given below.
Keep in mind that the relatively heavy buying doesn't mean that oil is headed up to $30 a barrel tomorrow. As I mentioned above, insiders in this industry tend to be early. But they also tend to be right.
is a poster boy of an "upstream" operator. It explores and produces oil and natural gas in fields ranging from Texas to Australia to the former Soviet Republic of Georgia.
The company's insiders are likewise poster boys of energy insiders that tend to be early, albeit right. Even before the World Trade Center tragedy, four Andarko executives were purchasing the company's stock as it drifted down from its December 2000 high of $76. Starting in April 2001, this group picked up shares starting at $65, and bought down to $51. All four were also sellers late last year as the stock peaked.
Andarko is projected to earn $5.37 a share this year and $3.41 in 2001. The company has managed a 30% return on equity over the past 12 months, and 26 analysts rate its stock a buy or strong buy.
( HC) provides natural gas compression and related services. CEO Michael McGhan picked up $119,000 worth of Hanover as it dipped below $20. McGhan's is the first open-market purchase by an insider at the company since May 1999, when he picked up a few hundred shares for $14. HC subsequently ran up to $48. No insiders sold into this run-up.
Hanover is expected to earn $1.35 a share this year and $1.81 in 2002. All seven of the analysts following the firm rate it a buy or strong buy.
Suburban Propane Partners
Organized as a Master Limited Partnership,
markets propane and related gear on the wholesale level on both coasts of the U.S.
As longtime CEO Mark Alexander saw his stock drop from $27 to $22 after the WTC debacle, he decided to invest another $110,000 in his firm. Another insider invested more than $20,000 at the same time. This is the first insider activity since December of last year, when Alexander purchased 5,000 shares for $16.63. Suburban then rose to $28 in July.
The company is expected to earn $2.38 a share this year (ending Sept. 30), $2.15 a share next year and has an indicated yield of 8.8%. All six analysts following Suburban Propane rate it a buy or strong buy.
( MVK) makes tubular steel products used to explore for and distribute oil and natural gas. Proving that equipment suppliers are hurt first when energy prices weaken, Maverick guided analysts' estimates down on Sept. 19 for its third quarter ending Sept. 30. Instead of earning 43 cents a share, as was expected a month ago, the company now only expects to earn 33 cents to 38 cents a share.
Even with this knowledge, Maverick's CEO, Gregg Eisenberg, invested another $114,000 in the company. Maverick had already halved in price since May, before the terrorist attack, and he is likely thinking the worst is over. Mr. Eisenberg's last purchase was in October 2000, at $16.19 a share. He had been sitting on a nice gain before investors turned cold to Maverick this summer.
Most analysts following the stock rate it a strong buy. Maverick is expected to earn $1.59 a share this year (incorporating the lower guidance), and $1.52 in 2001.
Enterprise Products Partners
is a partnership involved in the processing and transport of natural gas. Enterprise just announced that its third-quarter cash flow increased 74% year-over-year to a record $1.60 a share.
Nine of the 11 analysts following Enterprise rate it a buy or strong buy, and predict earnings of $2.49 a share this year, to be followed by $2.60 a share in 2002. The stock may seem expensive given this growth, but even at its present price, the partnership payout yields 5.2%.
Also, this stock has climbed steadily in the past three years, from $15 in early 1999 to its present price. Insiders and the company, through a buyback program, have been net buyers the entire time, averaging up and letting their winnings ride.
Other companies that are on my recommended list include
Heritage Propane Partners
Gulf Island Fabrication
Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights and founder of the Web site InsiderInsights.com. At the time of publication, Moreland had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland invites you to send comments on his column to
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