Tracking insider purchases is very important to our investment strategy. This is why, in this article, I will look into three companies in the Oil & Gas industry group, which have seen insiders buy their stock over the past couple of days.
The first company I would like to refer to is Stone Energy Corporation (NYSE:SGY), a $1.7 billion market cap independent oil and natural gas company engaged in the acquisition, exploration, exploitation, development and operation of oil and gas properties. On March 11th, Phyllis Taylor, a Board Director, purchased 7,000 shares of the company for $34.51 per share. He now owns 37,195 shares of the company, worth almost $1.3 million.
This company boasts above average margins and returns. Its return on equity of 12.8% is, in fact, amongst the highest in its industry. This, added to a cheap valuation, at 14 times the company’s earnings, versus an industry mean of 33.4 x P/E, makes Mr. Phyllis’ purchase understandable. Moreover, a consensus median price target of $42 per share provides plenty of upside potential for the stock.
Hedge funds seem to notice this potential too. Several prominent investors including Ken Griffin, Israel Englander and Chuck Royce hold million dollar stakes in the stock. However, poor long term growth projections and high debt levels make us feel slightly unsure about this investment option.
Second on my list is MPLX LP(NYSE:MPLX), a $3.6 billion market cap limited partnership recently formed by Marathon Petroleum Corporation (NYSE:MPC) that owns, operates, develops and acquires crude oil, refined product and other hydrocarbon-based product pipelines and other midstream assets. Also on March 11th, an insider acquired stock from the company: Richard C. Wilson, a Board Director, purchased 3,000 shares of the company at an average price of $49.42 per share. Following the reported transaction, the insider held 8,565 shares of the company valued at more than $400,000.
Once again, wide margins and decent returns, coupled with a cheap valuation (12.9 x P/E, compared to the 37.9 x industry average), make this stock an attractive investment option and Mr. Wilson’s purchase a comprehensible one. Furthermore, long-term EPS growth projections that is double its peers’ mean and a 2.5% dividend yield make it a great option for patient investors. Jim Simons and Russell Lucas seem willing to wait; they hold stakes worth approximately $1 million, combined.
Another interesting case is that of Midcoast Energy Partners LP (NYSE:MEP), a natural gas services provider with a market cap slightly under $1 billion. On March 11th, Gregory C Harper, Principal Executive Officer, bought 2,350 Class A Common Units of the company for $20.30 each. Mr. Harper had initiated a stake in the company only four days earlier; on March 7th, through several acquisitions, he had procured 2,590 shares of Midcoast Energy Partners at prices ranging from $20.17 to $20.19 per share. The insider now owns 4,940 shares of the company.
In this case, Mr. Harper’s bet must seems to have been placed on growth potential and a 3.2% dividend yield, since the company’s margins and returns are razor-thin. Nonetheless, the stock looks like a suitable (and cheap) option for long-term investors. We should highlight, however, that none of the major hedge funds that we track hold long positions in this stock.
Disclosure: Javier Hasse holds no position in any stocks mentioned