When insiders are buying, you know it has to be good – and the larger the purchase, the better it usually is. While insider purchases do not necessarily mean investors should buy the stock, looking at stocks with insider purchases is always a good starting point.
In this article, we are going to take a closer look at a few insider purchases reported to SEC recently. Insider purchases and sales are required to be filed to SEC within two days of the transactions. We are going to focus on stocks with large insider purchases and market caps over $2 billion.
SandRidge Energy Inc (SD): Daniel Jordan, Director at SandRidge, bought 50,000 shares of SandRidge stock for a total of $392,500. Jordan bought 25,000 shares at $7.7 per share and another 25,000 shares at $7.7595 per share on March 23. The transaction was reported to SEC on March 29. As of April 9, SandRidge was trading at about $7.06 per share. Note that there were also insider sales on SandRidge recently. On March 23, EVP Todd Tipton sold 11,074 shares at $8.1 per share and another 14,601 shares at $8.04 per share. However, insider sales are much less informative than insider purchases as insider sales are usually motivated by diversification or liquidity needs.
SandRidge was quite popular among hedge funds at the end of the third quarter. There were 28 hedge funds with SandRidge positions in their 13F portfolios at the end of December last year, up from 21 hedge funds at the end of the third quarter. In total, they had $439 million invested in SandRidge at the end of 2011, versus $115 million at the end of the third quarter. Famous energy hedge fund manager T Boone Pickens had nearly 7% of his 13F portfolio invested in SandRidge at the end of the fourth quarter. Wallace Weitz, Wayne Cooperman, and Israel Englander were also bullish about this stock.
For the fourth quarter last year, SandRidge’s revenue grew by 27.6% compared with the same quarter a year earlier, beating the industry average growth of 26%. However, the company’s EPS declined during that period. Ultimately, SandRidge suffered a loss of $0.97 per share in the fourth quarter last year.
In fact, the company did not perform very well at all over the past year. It made $0.13 per share in 2011, versus $0.52 per share in 2010. Analysts expect SandRidge to recover quickly in the next few years. The company is estimated to make $0.25 per share in 2012 and $0.39 per share in 2013. So, SandRidge’s P/E ratio for 2013 is about 18.
It looks like SandRidge is overpriced compared with other energy stocks, most of which have low multiples. For example, Apache Corp (APA) has a 2013 P/E ratio of only 6.9. However, when SandRidge is compared with other mid-cap energy stocks rather than large-cap stocks, it looks attractive. For instance, EV Energy Partners LP (EVEP) has a market cap of about $2 billion and a 2013 P/E ratio of about 41, and Pengrowth Energy Corporation (PGH), which has a market cap of $3.4 billion (same as SandRidge), has a 2013 P/E ratio of 21.5. As such, if investors just want to gain exposure to the energy market, then large-cap stocks with low multiples are better choices for them, but if they are interested in mid-cap energy stocks, SandRidge is a good option.
ExactTarget Inc (ET): ExactTarget went public on March 22 with an IPO price of $19 per share. Three insiders purchased the stock at its IPO price on March 27. Jay Hoag, the largest shareholder of the company, purchased 99,382 shares in total at $19 per share. Another large shareholder, Greenspring Opportunities GP II LLC, also bought 800,000 shares in total at $19. Director David Yuan bought 618 shares at $19 per share on the same day as well. These insider purchases were reported to SEC on Thursday, March 29. The stock is closed at $24.32 per share on April 9, up nearly 28% from its IPO price.
Compared with its peer group, ExactTarget is fairly priced. The company has a current P/E ratio of 19 and a forward P/E ratio of about 15. It also has double-digit expected earnings growth over the next couple of years. Looking at its competitors in the major internet software & services arena, Ariba Inc (ARBA) has a forward P/E ratio of nearly 30 and CGI Group Inc (GIB)’s forward P/E ratio is about 13.
We do not yet have the number of hedge funds with positions in ExactTarget as the company just landed on NYSE in late March. The updated data will be provided next month.
A few other stocks with insider purchases reported to SEC over the past week include Nike Inc (NKE) and First Energy Corp (FE). Nike’s director John Lechleiter bought 500 shares on March 23 at $76.16 per share and another director Orin Smith purchased 2,700 shares on March 30 at $76.678 per share. First Energy’s director Christopher Pappas bought 2,000 shares at $44.82 per share on March 23. We like both stocks. Nike has a forward P/E ratio of about 20, a discount to the industry average of 25.3. It also demonstrated a positive EPS growth trend over the past few years and we expect it will continue its double-digit growth in the next couple of years. First Energy is a good dividend play. It has a dividend yield of 4.82%, almost 3 percentage points higher than the 10-year Treasury bond. We don’t think First Energy will deliver strong capital gains but it is a great alternative to fixed income instruments.