Insiders Think Basic Energy is Priced to Buy

NEW YORK (TheStreet) -- Let's face it; these are not the best of times for companies that produce natural gas as well as oil. When natural gas prices dropped below $2 per thousand cubic feet (MCF), investors almost panicked.

We've heard stories that the industry is producing more natural gas then there are facilities in which to store it. Some claim that the disparity between demand and production is on the level of 3 billion cubic feet per day. Can demand suddenly take up that kind of slack?

Then there are the issues about the nation's second-largest producer of natural gas, Chesapeake Energy ( CHK). They've been making mostly negative headline financial news almost daily, and this has done further damage to the natural gas story.

It's Often Darkest Right before the Dawn

The plunging price of natural gas can also spell opportunity. We're seeing many strong energy companies like Apache ( APA) and Devon Energy ( DVN) fall to compelling levels.

As Alexander Green, the Investment Director for The Oxford Club recently commented: "Historic buying opportunities are now developing in this bombed out sector. Or, as renowned investor Jeremy Grantham recently put it, 'Everyone who has a brain should be thinking of how to make money on this.' "

When corporate officers and directors of companies in the "energy patch" wake up and see that now's the time to buy more shares of their company, many of us take special notice.

These "insiders" often have a good read on when their company's share price is unreasonably low. They can see the company's daily balance sheet and the pipeline of work orders coming in and how that's likely to boost the company's earnings over time.

A recent example of this involves a company that provides various well site services to oil and natural gas drilling and producing companies in the United States. It trades for less than 7 times current earnings and almost 6 times forward earnings.

Basic Energy Services ( BAS) claims proudly that they have "over 600,000 active wells in our footprint". They're also confident because they're "focused on the most prolific oil and gas producing regions in the country."

From over 100 service points in 13 states, they provide a comprehensive range of well site services that are fundamental to establishing and maintaining the flow of oil and gas throughout the entire lifecycle of a well. You can learn more about them at their well-organized (excuse the pun) Web site.

The stock has been hammered over the past year from a high of $37.79 down to a recent low of $13.32 on May 4, 2011.

When the stock price dropped to $13.50 on April 23, company director Steven Webster bought 52,370 shares at a total cost of $706,995. That's what some refer to as "eating your own cooking".

A day later, Director Thomas Moore purchased 11,000 shares of BAS at $13.53. Moore had reported that he owned almost 166,000 shares back on March 19th of this year. Now his total investment as far as we know is around $2,395,000.

Keep in mind that Basic Energy, as of March 31, 2011, is generating over $33-per-share in revenues, which represents almost a 51% quarterly increase (trailing-twelve-months).

They sport an impressive return-on-equity of nearly 26%, and are trading at a price-to-sales ratio of only 0.41. This combined with a PEG (5-year expected) ratio of only 0.65 (less than 1 is often considered undervalued) might be why company insiders are loading up.

If you're like me, this translates to BAS making my personal wish-list, and I may soon want to join their company directors in owning some shares.

Cautious investors may want to wait to see if the share price tests the 52-week low of $12.49 and holds before jumping on board.

It's unreasonable for a trader or an investor to think they can catch the bottom for buying or the top for selling. That's why it's much more realistic to make investment decisions based on facts and key statistics.

Two facts that are compelling right now are that this segment of the energy sector is selling at low valuations and that directors in-the-know are buying impressive amounts of BAS.

Disclosure: At the time of publication, Marc Courtenay was long APA, CHK and DVN.

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