Two Insiders Agree With Billionaire Dan Loeb on Weatherford

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Two company officers at oil and gas equipment and services company Weatherford International Ltd (NYSE:WFT) have bought shares since the middle of December. According to filings with the SEC, Vice President James Parent and Senior Vice President Dharmesh Mehta each bought 30,000 shares, at prices generally between $10.50 and $11 per share. As of this writing the stock trades towards the upper end of that range, and is down 30% for the year. Mehta has been buying quite a bit of Weatherford shares this year, including 25,000 shares in mid November (see a history of Mehta’s insider purchases). Studies show that stocks bought by insiders tend to outperform the S&P 500, and this makes sense to us as insiders should avoid buying more of the stock- preferring instead to diversify- unless they are very confident in the company. Read more about studies on insider trading. Consensus insider purchases- such as what we see here at Weatherford- are particularly bullish signals and so we think it’s particularly useful to research the company further.

THIRD POINT

We recently named Weatherford as one of the highest-upside stocks in billionaire Dan Loeb’s portfolio, going by the five-year PEG ratio. Read about the rest of Loeb’s high upside stock picks and see the rest of the stocks Third Point owned. Specifically, the five-year PEG is 0.5 as a result of high growth expectations and moderate multiples (the forward P/E is 10). Orbis Investment Management, managed by William Gray, also liked the stock: according to Orbis’s 13F filing, Weatherford was one of the five largest holdings by market value in its portfolio at the end of September (check out more of Orbis’s favorite stocks).

North American revenue increased 7% in the third quarter compared to the same period in 2011; a little less than half of Weatherford’s sales are in that geography. Strong performance in the rest of the world pulled total revenue up 13%. Operating and net income both declined, however, primarily due to lower gross margins. For the first nine months of 2012, operating income was about even with the same period in the previous year before deducting special items realized in H1 2012. Investors should be aware that the stock’s beta is 2.2, as a result of factors such as leverage and drilling’s reliance on energy prices (which in turn is driven by the global economy).

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