According to a Form 4 filed with the SEC, John Mullin III, a member of Hess Corp. (NYSE:HES)’s Board of Directors, directly purchased 10,000 shares of the company’s stock on June 21st at an average price of $63.01 per share. Insiders already have an economic connection to the company, and so theory suggests that they should be reluctant to buy more shares- thereby increasing company-specific risk- unless they are particularly confident in the stock’s prospects. Studies do in fact show a small outperformance effect for stocks bought by insiders (read our analysis of studies on insider trading), and so we like to at least briefly review large insider purchases so that investors can do further research on any interesting names.
Hess Corp. (NYSE:HES) recently announced that it plans to divest its midstream and downstream assets within the next couple years in order to focus on exploration and production. Some activist investors had been pressuring the oil and gas company to do so. We track quarterly 13F filings from hedge funds as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year) and can see that billionaire Paul Singer’s Elliott Management, for example, had bought up 15 million shares of stock by the end of the first quarter of 2013. At that time that stake was worth over $1 billion (see Singer’s stock picks). Paulson & Co., managed by billionaire John Paulson, initiated a position of 2.7 million shares (find Paulson’s favorite stocks) and billionaire David Einhorn’s Greenlight Capital was buying the stock as well (research more stocks Greenlight was buying).
As it currently stands, Hess Corp. (NYSE:HES)’s business has been going fairly well. In the first quarter of 2013, operating revenues grew by 20% versus a year earlier. Pretax income was up significantly as well, even if we subtract out a large gain on asset sales from this year. Many investors like to invest in companies spinning our parts of their business on the thesis that management will become more able to focus on core operations with those assets under a difference company entirely, so in theory Hess could grow its earnings per share along those lines as well. At its current valuation, the forward P/E is only 11.