What Industry Insiders Think About Energy's Washout
By Brian Heyliger, editor, Inside Strategist
September 8, 2008
Coal... crude oil... natural gas... pipelines... The list of insiders buying energy shares in August is as long as my arm.
In July, oil peaked at $145 a barrel. Today, oil's at $105 and still sinking. Even before oil fell down the stairs, oil stocks were selling off... Now, things have gotten even bloodier.
The Oil Service Trust (OIH) is down 27% in about two months. ExxonMobil (XOM), the world's largest public company, is down 14% since early July. And the Alerian MLP index, which tracks pipeline companies, bounced in August... then came crashing back down last week.
But while everyone's stampeding for the exits, insiders are gobbling up shares in energy companies. Here are just a few examples of what I've seen recently...
- Natural gas producer and driller SandRidge Energy (SD) insiders have bought $4.5 million...
- Four Contango Oil & Gas (MCF) executives dropped almost $3 million into the company in the past few weeks...
- Pipeline operator Duncan Energy Partners (DEP) got a $2.5 million lift from its chairman...
- And Patriot Coal (PCX) insiders have bought $1.8 million.
Insiders are the best-informed group of investors in the market. They know more about what their companies are worth than any other investor out there.
So when you see insiders across a sector betting big with their own cash, pay attention. It's likely the investing herd has headed over a cliff, dumping good stocks along with bad in a sectorwide panic. And traders who know better can scoop up quality stocks at firesale prices.
That's exactly what we're seeing in energy stocks right now. So I put together a list of insiders' favorites over the last month...
Company |
Ticker |
One-Month Buy (millions) |
Average Price |
Atlas America |
ATLS |
$11.2 |
$35.85 |
Duncan Energy |
DEP |
$2.7 |
$18.22 |
Hercules Offshore |
HERO |
$1.8 |
$24.50 |
Targa Resources |
NGLS |
$1.8 |
$22.19 |
Semgroup Energy |
SGLP |
$1.2 |
$9.98 |
Breitburn Energy |
BBEP |
$1.1 |
$17.16 |
Crusader Energy |
KRU |
$0.96 |
$4.28 |
Petrohawk Energy |
HK |
$0.89 |
$27.93 |
Western Gas |
WES |
$0.88 |
$14.74 |
Forest Oil |
FST |
$0.56 |
$56.00 |
|
One company I like is Duncan Energy Partners (DEP), a natural gas pipeline and storage business. In other words, it's a toll road for energy. Duncan, which pays a hefty 9% dividend, is a lot like Enterprise Products (EPD). EPD has handed Inside Strategist readers a 75% gain.
Then there's Atlas America (ATLS), which has seen massive insider buying since August. After its 2004 spinoff, this independent natural gas producer and transporter soared from $5 to $50 – a ten-bagger.
These are both quality companies... and they're certainly on sale: DEP is down 40% from its all-time high, ATLS is down 35%. But I don't think now's the time to buy...
Insiders generally have a long-term approach to investing. In most cases, they're not allowed to sell their shares for at least six months. So they're not always concerned with calling the bottom. Energy prices are still falling. That's going to take most of these insider-approved stocks farther down.
But when insiders buy like they're buying energy today, you know there's money to be made. I suggest you watch this sector closely. Soon, we should have a good chance to place our bets with the market's most knowledgeable investors.
Good investing,
Brian Heyliger
