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This Income Investment Is So Good, It Shouldn't ExistBy Brian HeyligerMonday, October 20, 2008 When it comes to analyzing the actions of corporate insiders, I look for one bullish sign above all others...
It's a sign that almost always signals a big downtrend is over... and that you'll be able to buy an industry for pennies on the dollar. It signals a big uptrend around the corner.
The sign? It's when directors, CEOs, and financial officers across an entire industry buy stock by the truckload.
Most of the time, you'll find significant insider buying scattered around just a few companies, in just a few sectors. You can find solid investing ideas here, but not the "slam dunk" ideas that broad, industry-wide buying generates.
For instance, check out the MLP sector right now:
MLP stands for "master limited partnership." These partnerships are special corporations that receive big tax breaks from the U.S. government.
Most MLPs are in the business of distributing and storing natural gas. They get tax breaks to encourage investment in the country's energy infrastructure... and they pass on much of their revenue to shareholders in big dividends known as "distributions." Since natural gas produces around 22% of U.S. electricity, it's vital to have this infrastructure running as smoothly as possible.
But "running smoothly" is the opposite of what you'd call the stock-price action in MLPs since June. The benchmark MLP index is down 31% since then. It's an enormous move for a boring sector that typically moves as fast as a glacier. MLPs suffered an absolute panic drop of 25% this month.
Like many stocks that have been dumped in the past three weeks, this move is totally overblown. These companies aren't doing anything with complicated mortgage assets. They don't sell iPods or cars or motor homes. They just own pipes and get paid as "toll collectors" for processing the nation's energy.
I've been watching this sector for several months now... As you can see from the table above, insiders have been busy buying shares. They're intimately familiar with the business, and they realize the values here. Most MLPs are offering safe yields in the 10%-15% range... and these payouts are increasing. As my colleague Tom Dyson just wrote:
When the credit crunch hit, the crowd all ran for the door at the same time. They needed cash to cover their debts. Everything had to go, regardless of price. The situation is so extreme that MLPs that normally pay 6% yields are paying 10% today. And MLPs that normally pay 10% yields are paying 18% today.
This is an extraordinary opportunity if you're a long-term investor looking for stable dividends. Sure, the economy is going to get weaker. But it's not going to get so weak that folks won't use natural gas to heat their homes and keep their lights on. The list above is a great place to start looking for bargains.
Good investing,
Brian Heyliger
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Gold liquidation continues... mining giants Barrick, Newmont, Agnico-Eagle, and Goldcorp hit 52-week lows.
CB Richard Ellis, the country's biggest commercial real estate manager, hits a five-year low.
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