Energy Insiders Are Buying These Stocks
Oil prices are surging, but many investors are unsure if the worst is past, or whether this is simply a head fake before further declines set in. But it’s not just the average investor who is uncertain about what to do. As noted in last week’s issue, analysts are projecting that the price of oil is headed somewhere between $20/barrel and $200/bbl.
So this week, let’s evaluate another piece of information that some investors use when trying to determine whether a stock is a bargain: insider buying. I would be very wary about a company that appears to be a screaming buy, but that has insiders dumping shares. On the other hand, insiders should have a better feel for a company’s prospects than the average investor — or even the analysts covering the company — so insider buys can highlight an undervalued stock.
So I screened for insider buys over the past 90 days for trades of at least $500,000 in the oil and gas extraction and refining sectors. For the purposes of this exercise, an insider is a director or senior officer of a company or person or entity that beneficially owns more than 10% of a company’s voting shares. I removed trades that had been made indirectly (e.g., shares transferred from a parent to a child), those that had been made to satisfy tax liabilities, and those that had simply been the exercising of options.
Data sources: SEC Filings, Yahoo Finance, Google Finance
Oasis Petroleum (NYSE: OAS) — which incidentally continues to top the stock screens I use to highlight potentially undervalued energy companies — saw the most insider purchases over the past 90 days. There were purchases by a 10% owner of the company and one purchase by a director, totalling $46.4 million. RPC (NYSE: RES), an oilfield services holding company, was close behind with multiple insider purchases totalling $39.9 million. C&J Energy Services (NYSE: CJES), which provided hydraulic fracturing services, had two identical insider buys totaling $20.9 million.
To be clear, insiders do get it wrong. One need look no further than Harold Hamm, the brash CEO of Continental Resources (NYSE: CLR), the largest crude oil producer in the Bakken formation. In November, with the price of West Texas Intermediate trading just below $80/bbl, Hamm announced:
“We view the recent downdraft in oil prices as unsustainable given the lack of fundamental change in supply and demand. Accordingly, we have elected to monetize nearly all of our outstanding oil hedges, allowing us to fully participate in what we anticipate will be an oil price recovery.”
That proved to be a major miscalculation, and the share price of CLR would fall by 26% over the next 60 days. On the other hand, one of CLR’s directors did show up on the list with a $603,000 purchase in December, and shares are up 24% year-to-date.
So just bear in mind that blindly following the actions of insiders can be painful in some cases. But it is another data source for investors as they evaluate companies for purchase.
(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)
Portfolio Update
Teekay Tankers Steams Ahead
The rising tide of surplus crude is lifting many boats, but perhaps none more so than the operators of tanker fleets.
Recent Aggressive Portfolio recommendation Teekay Tankers (NYSE: TNK) handily topped analysts’ estimates in fourth-quarter results reported Feb. 19, with free cash flow of 35 cents a share, up from 12 cents a year ago.
The best is very likely still to come, because the strongest spot oil tanker rates in six years have risen even more so far during the first quarter, with Aframax vessels that account for 12 of 32 directly owned ships in TNK’s fleet now fetching spot rates of $30,000 a day, up 17% from the quarter just reported and 36% from the third quarter of 2014. TNK’s 10 Suezmaxes can now pursue spot rates of $39,000 a day, up from $26,600 in the quarter just reported.
Even at the fourth quarter’s average Aframax spot rate of $25,700 a day, the company generated a 24% free cash flow yield based on its current share price, even as it continued doling out a modest dividend yielding an annualized 2.1%.
TNK’s exposure to the strong and improving spot market is higher than it’s been in years at 85% of capacity in 2015, leaving plenty of room for additional upside as tankers hired out in the past at lower rates come off charter this year.
Management cited increasing demand for crude as a result of lower prices as the primary reason for the rising rates. It’s also helped that 30 Very Large Crude Carriers have been hired for potentially long-term offshore storage as traders try to take advantage of the crude contango, which has futures contracts for delivery in late 2015 and in 2016 trading well above those for nearby months. Tankers storing crude are tankers not competing for cargoes on shipping routes.
Also boosting oil tanker rates are increased shipments of crude from the Atlantic basin to distant Asia, while product tankers have benefited from strong Asian demand for naphtha and from the increased traffic serving several large new Middle East refineries.
The share price soared 42% between Dec. 24 and Jan. 12, then pulled back to its rising 50-day moving average. It rose 5% Thursday on the earnings news before retreating 3% Friday. So long as oil stays cheap, the future for crude tankers looks bright. Buy TNK below the increased price target of $7.50.
— Igor Greenwald
Stock Talk
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