|2. Basic Energy Services, Inc (NYSE:BAS)|
|Insiders tend to view the outlook for their company’s stock differently than most outside investors. While the herd tends to focus on companies poised for solid results in the current quarter, insiders focus on how their business is trending over several years. So when investors dump a stock for short-term reasons, but the future still looks bright, insiders tend to swoop in.That’s just what happened at Basic Energy Services, Inc (NYSE:BAS), which provides a wide range of equipment that energy drillers use, from the rigs themselves, to all of the tankers and other trucks that are used around a drilling site. After a so-so earnings report pushed shares down in late July from $14.50 to $11.50, a company director acquired $179,000 in stock.
Thanks to a series of near-term drilling challenges, Basic Energy Services, Inc (NYSE:BAS) management concedes that the second half of 2013 will generate middling results, though management made a solid case for growth in 2014 on a recent conference call.
Still, analysts at Williams Capital offered up a typical Wall Street response, rating shares a hold due to their lack of timeliness. Yet they also have a $16 price target, which is roughly 30% above current levels. “The stock has substantial upside to our price target, and given the (July 26 sell‐off), a near‐term recovery in the shares would not be surprising.” However, fundamental improvement is still several quarters away, noted their analysts. That $16 price target equates to just four times projected EBITDA (earnings before interest, taxes, depreciation and amortization).
Goldman Sachs also has a seemingly cautious view: “It appears increasingly likely that a true recovery in service activity may not come until 2014.” Yet they think that shares are so inexpensive in relation to 2014 and 2015 EBITDA projections, that they have this stock on their “Conviction List,” which is reserved for stocks with solid potential upside. Their $18 price target equates to 4.3 times projected 2015 EBITDA.
Risks to Consider: The key takeaway is that these are not timely trades — these are openings for longer-term investment opportunities. Insiders are notoriously bad at timing the market, so patience is a must when following their moves.
Action to Take –> Insiders have also been recently acquiring shares at seismic mapping firm Ion Geophysical Corp (NYSE:IO). This cluster of buying across the industry highlights the theme that industry conditions are a challenge for energy equipment and service providers in 2013, but the outlook for 2014 and beyond remains quite solid.
P.S. — The abundance of natural gas in the U.S. could lead to a third industrial revolution. One analyst is predicting a stock could rise 1,566%. Another stock has already jumped over 1,000% and is expected to keep going. To learn more, click here.
The article Insiders Are Spending Millions On These 2 Energy Stocks — Should You? originally appeared on StreetAuthority.com and is written by David Sterman.
David Sterman does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.