The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( Insider Monkey) -- Insider transactions are usually worth looking at. Though insider purchases or sells do not always send clear "buy" or "sell" signals, it is always a good starting point to choose which stocks to be analyzed. In this article, we are going to take a closer look at a few insider purchases reported to SEC during the last week. We selected a few notable insider purchases with large dollar amounts purchased and large number of shares purchased. We also focused on stocks with relatively large market caps (above $1.5 billion) because these have enough liquidity to absorb sudden surges in demand.
Over longer term, the company's earnings are expected to grow at an average of about 10%. The forward P/E ratio of SPB is 11.9, a discount to the 16.41 for the average of its peers. We also see strong free cash flow generation ability of SPB. Its management team has an aggressive deleveraging plan. They reiterated their target gross debt to EBITDA to be less than 3.4 times at the end of FY2012. Overall we like SPB. We think the company will outperform the market as well as its peers over the next couple of years. Stone Energy ( SGY). Another stock bought by insiders recently is SGY. Director Phyllis Taylor purchased 16,700 shares of SGY at $29.9259 per share on March 7. SGY was closed at $31.72 per share on March 9. It returned about 5.7% in two days, beating the market by over 4 percentage points. There were also a few hedge funds bullish about this stock. As of Dec. 31, 2011, 14 hedge funds reported they owned SGY in their 13F portfolios. For example,
Israel Englander 's Millennium Management had $20 million invested in SGY. Jim Simons ' RenTech and Glenn Russell Dubin's Highbridge Capital Management also invested more than $10 million in this stock. SGY posted strong results for the fourth quarter of 2011. Its revenues were up 29.2% compared with the same quarter last year, beating the industry average of 22.7%. The stronger-than-average revenue growth also helped boost the company's earnings. SGY's fourth-quarter net income increased by 91.6% to $45.52 million, largely exceeding the average of oil, gas and consumable fuels industry. SGY's EPS was $3.97 for the fiscal year 2011, vs. only $1.98 for the prior year. Over the past few years, SGY demonstrated positive EPS growth and we expect that trend to continue. In 2012, the company is expected to make $4.14 per share. Therefore, SGY's forward P/E ratio is 7.66, a significant discount to the industry average of 15.39. A few other stocks with insider purchases reported on March 8 or 9 include Nationstar Mortgage Holdings ( NSM), Natural Resource Partners LP ( NRP), Arch Coal ( ACI), and Cedar Fair LP ( FUN) . Out of these four stocks Arch Coal is the most popular one among hedge funds. There were 23 hedge funds with bullish Arch Coal bets. Malcolm Fairbairn's Ascend Capital and Ray Dalio's Bridgewater had the two biggest positions in the stock.
Arch Coal lost two thirds of its value over the last 52 weeks. This is not the first time Arch Coal's insiders tried to catch this falling knife. Several Arch Coal insiders bought thousands of shares in August at around $19 per share. The stock lost almost 40% since then. We don't recommend imitating insiders in this stock. The company's fate is dependent on natural gas prices and Arch Coal's insiders have no "inside information" about that. Insiders are optimistic about the stock for two reasons. First, they think the stock price already reflects the lowered expectations. Second, Arch Coal will be cutting its production and this should put a floor on coal prices and support its profitability. We wouldn't hurry to imitate insiders in this stock.