Tracking insider purchases is very important to our investment strategy, just as keeping an eye on hedge fund moves. This is why, in this article, I will look into two companies in the Oil-Related Services industry group, which have seen insiders buy their stock over the past couple of days.
The first company I would like to look into is Ferrellgas Partners, L.P. (NYSE:FGP), a $1.8 billion market cap distributor of propane, related equipment and supplies, which sells to customers, mainly in the United States. Over the past couple of weeks, at least two insiders at the company acquired its stock. The most active one has been Stephen Wambold, the CEO and President of the company. Through nine separate purchases, Mr. Wambold added more than 4,000 shares of common stock to his holding, having paid prices ranging from $21.89 per share (on March 21st), to $22.61 per share (on March 28th). Over February, the company’s CEO had already increased his stakes in the company by 15,000 shares. After March transactions, the insider owns more than 84,000 shares of the company, valued at more than $1.94 million.
The other active insider was Tod Brown, Executive Vice President, who, on March 20th, procured 9,000 Ferrellgas Partners, L.P. (NYSE:FGP) shares for $11.63 each, using 9,000 stock options (right to buy) that he held. Mr. Brown now owns 45,000 shares of common stock.
This company boasts above average operating and net margins. However, its returns are not looking good, and neither is its stock valuation, at 35 times the company’s earnings (about three times its industry’s average). Nonetheless, the purchases that the insiders made make sense, since the company “continues to expand its operations through strategic acquisitions. The partnership announced its third acquisition in fiscal year 2014, taking the tally to approximately 245 to date” (Zacks).
Notwithstanding, hedge funds do not seem to agree with this view (or see no real potential in the company). Several prominent investors including Jim Simons and Matthew Hulsizer closed out their positions in the stock during the fourth quarter of 2013.
The other company on my list is Nuverra Environmental Solutions, Inc (NYSE:NES), a firm that provides environmental solutions to customers focused on the development and ongoing production of oil and natural gas from shale formations. Just like in the previous case, the company saw two insiders purchase its stock over the past couple of weeks.
Mark Johnsrud, Chief Executive Officer and Vice Chairman, acquired almost 28,500 shares of Common Stock on March 25th, and an extra 10,000 shares on March 27th. He paid prices ranging from $18.29 per share to $19.56 per share, and now owns more than 9.66 million shares, which are worth almost $195 million.
In addition, Curtis Jay Parkinson, Executive Vice President and Chief Financial Officer, bought, on March 20th, 2,500 shares of Nuverra Environmental Solutions Inc (NYSE:NES) for $17.87 each, and now holds 105,000 shares directly, plus 366.709 shares, indirectly, through his 401(k) Match Plan.
Despite negative margins and returns, it’s not only insiders that like this Nuverra: analysts seem to believe in this company too. In fact, they expect it to widely outperform its peers over the next five years, delivering average annual EPS growth rates of 25% (which double its industry’s mean).
On the other hand, hedge funds have substantially cut their exposure to this stock. For instance, Nelson Obus’ Wynnefield Capital, D. E. Shaw and Israel Englander (the three hedge fund with largest stakes) considerably shrank their stakes in the company over the last reported quarter.
Disclosure: Javier Hasse holds no position in any stocks mentioned