Insider trading activity describes the phenomenon of when a company’s executives, board members, or large stockholders buy or sell shares of that company. In most cases, insider buying is a stronger bullish indicator than selling is a bearish one, though the latter still needs to be kept in mind. While most analyses of this activity follows individual companies, it’s also important to take a look at baskets, either in the form of industries or entire sectors.
Yesterday, we looked at the oft-discussed social media stocks, and concluded that the overwhelming majority of insider sentiment in this pseudo-industry was negative. Consequently, we discussed how this basket of companies had returned zilch to their investors in 2012, shedding light on why insider trading is an integral part of any financial analysis. Today, we’re going to take a look at a few energy behemoths like Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and more. Let’s get into the details.
|Stock||# Insiders (B/S)||YTD Ret %|
Exxon Mobil Corporation
BP plc (ADR)
Marathon Petroleum Corp
As a group, these seven stocks – some of the energy sector’s most popular names – have returned 12.9%, led by Phillips 66 (NYSE:PSX) and Marathon Petroleum Corp (NYSE:MPC). Of the stocks with at least one insider buy in the past twelve months, investors have taken home a superb return. Following its spinoff from ConocoPhillips (NYSE:COP), Phillips 66 has returned close to 40%, as the markets have taken kindly to the downstream portion of the multi-billion oil and gas refinery. From an earnings standpoint, the company has been an exciting investment to hold, as it reported close to $1.2 billion in Q2 earnings, up 18% from the same quarter last year. According to his 13F filings, Warren Buffett bought over 27 million shares in the second quarter, and Phillips 66 currently is the Oracle of Omaha’s thirteenth favorite stock.
ConocoPhillips, meanwhile, is Buffett’s ninth most bullish investment, as it accounts for a little over $1.6 billion of his 13F portfolio. Since its split, the upstream portion of the company has lost more than 20%, as its second quarter net income fell by a similar margin year-over-year. Conoco has also reportedly ended its operations in the Caspian Sea, which was expected to have between 9 and 16 billion barrels of oil, whilst selling its stake in LUKoil (LON:LKOH). While it appears that investors don’t like the company’s new streamlined look, bargain-hunters – Buffett included – may find it attractive. Conoco currently trades at trailing and forward P/E ratios below industry averages. The company is expecting earnings of $1.16 a share for the current quarter, and reports its results later this month. Any overperformance should push Conoco back to a fairer valuation.
Aside from Conoco’s spinoff Phillips 66, the only other stocks on this list to have insider buys are Halliburton and Marathon Petroleum. The latter has returned over 60% in 2012 thus far, as it has beaten the Street’s earnings expectations in each of the past two quarters. In its most recent release, Marathon reported an EPS of $2.53, up 24 cents from Q2 of 2011, and 7 cents above average estimates. Shares jumped a few percentage points earlier this week when the company announced it was buying BP’s Texas City refinery for close to $600 million. The move is expected to boost Marathon’s bottom line by $700 million to $1.2 billion. It appears that Marathon got a good price from BP because other buyers were scared away due to the plant’s troubled history, where a 2005 octane booster explosion killed 15 workers.
Halliburton has been rather flat since the start of the year, and saw a moderate purchase of 30,000 shares by Director Murry Gerber in February. The company has exceed earnings expectations in every quarter this year, most recently beating estimates by 6.3% in July. In the long-run, Halliburton expects EPS growth of 18.1% a year over the next half-decade, much quicker than its 5-year historical average of 9.5%. Despite a near-doubling of its earnings growth rate, investors are valuing it in as a $30 stock, which puts its PEG ratio at an astoundingly low 0.55. Do us a favor, “monkey” Gerber and get into Halliburton while its still a good value-play. There’s no trap here, and as a bonus, its lawsuit over truck driver ambushes in Iraq was actually given the kibosh by the Supreme court earlier this week.
Chevron hasn’t seen any insider buys, but is up slightly YTD. The oil and gas giant has worried investors this week with a bearish guidance readjustment where execs stated EPS will be “substantially lower” than the previous quarter, as upstream profits were hurt by Hurricane Isaac, and maintenance costs in Kazakhstan and the UK. Downstream revenues were also hurt by a debilitating fire at its Richmond, California crude refinery, and hurricane related issues at its Pascaguola, Mississippi facility. The stock does trade at attractive earnings multiples, but expects declining EPS over the next half-decade, predicting just a 2.2% annual expansion through 2017. Due to the fact that the stock sports a rather unattractive PEG ratio of 3.86, we can see that investors may have a good reason to be bearish at Chevron’s current price in the $112 range.
For a longer look at the insider trading activity surround these and other energy stocks, visit Insider Monkey’s comprehensive database.