Insiders Are Buying Oil Stocks: Should You?

• (0:40) - Oil Stocks Plunge Lower: Insiders Are Buying
• (4:00) - Insiders Buying = Value Indicator: 2 Value Scenarios
• (7:00) - What Are the Insiders Buying: Large Cap
• (13:40) – Small Cap Companies: The Place to Be?
• (17:20) - Episode Roundup: Podcast@Zacks.com

Welcome to Episode #48 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.

One of the hottest topics for value investors in 2017 is the energy sector, and specifically, the E&P companies. Some of these stocks have been hitting new 52-week lows as the price of crude has fallen.

That opens up a possible buying opportunity, even for corporate insiders.

Two Insider Buying Scenarios

The corporate insiders, which usually means all of upper management like the CEO, CFO, head lawyer, and the head of HR, as well as the directors, usually buy company shares in two scenarios.

1. The first scenario is when the shares are at or near new highs. Business is strong at the company and everyone is feeling bullish. The insiders buy when they really believe in the future of the company. This usually isn’t a value situation. It’s growth and momentum.

2. The second scenario is when the shares have been sold off and are at or near new lows. Usually, insiders believe that the selling has been overdone and they see a value opportunity. They feel they’re getting the shares on the cheap.

Under both scenarios, the insiders, like all investors, expect to make money. They usually already own a lot of company shares as that’s how they receive compensation. Why buy even more?

They’ll buy more because they’re greedy and see an opportunity. That’s why it pays to follow the insider buying.

With oil stocks now hitting new lows, it’s not surprising that some insiders have recently decided to jump in and buy.

Value investors, therefore, can get clues to where the true bargains are by watching the insider buying.

Where the Insiders Are (and Aren’t) Buying

1. Exxon (XOM)hasn’t seen any insider buying in either 2016 or 2017, which is surprising. One insider bought around the last lows in the stock, which was all the way back in August 2015. Shares are down just 8% year-to-date. Maybe they’re not cheap enough yet for the insiders to be interested.

2. Occidental (OXY)has seen its CEO and CFO both buy in 2017 as shares have sunk about 14% year-to-date. The CEO bought 15,000 shares in March. It was her first open market purchase since she joined the company in 2014.

3. Apache (APA)shares are off 25% this year, which is more than some of its big cap peers. Some insiders are seeing a deal. A director bought 10,000 shares in May. Two directors also bought shares in 2016. The largest cluster of buyers, however, was in August 2015 when shares hit new lows.

4. SM Energy (SM)has fallen 54% in 2017 which has brought out the insider buyers. The CEO bought 2,000 shares on June 8, 2017. He also bought in February 2017 and near the stock lows in February 2016 when shares fell to around $8. The Executive Vice President of Operations also bought on June 8 when he bought 3,000 shares. He too bought near the February 2016 lows. It’s a strong signal when the insiders keep going back to buy more. At SM Energy, these two insiders have done multiple buys.

5. Whiting Petroleum (WLL)shares are hitting new 52-week lows, falling 54%. You’d think some insiders might be interested, right? But no insiders have bought in 2017. Nor did they buy in 2016 when shares traded under $4, which was a multi-year low.

We all like to get a deal.

Getting a cheap stock and seeing it turnaround is a lot of fun for investors. But it’s also fun for the insiders.

That’s why value investors would be wise to watch what the insiders do in these sectors and industries that are really taking a beating.

In addition to the five companies above, Tracey discussed the insider buying of even more companies on this week’s podcast including Pioneer Drilling (PXD), Continental Resources (CLR), Chevron (CVX), and SRC Energy (SRCI).

Are the insiders buying at any of them?

Find out on this week’s podcast.

[In full disclosure, Tracey owns shares of APA and WLL in her personal portfolio.]

Want more value investing insights from Tracey?

Value investors are a special breed of investor. They don’t follow the herd.

If that is your style of investing, be sure to check out Tracey’s weekly Value Investor service to receive more in-depth analysis on value companies and see which stocks she thinks are the best bargains now.

The Value Investor portfolio holds between 20 and 25 value stocks for the long haul.

Click here to learn more>>>

Exxon Mobil Corporation (NYSE:XOM): Free Stock Analysis Report

Apache Corporation (NYSE:APA): Free Stock Analysis Report

SM Energy Company (SM): Free Stock Analysis Report

Whiting Petroleum Corporation (WLL): Free Stock Analysis Report

Occidental Petroleum Corporation (NYSE:OXY): Free Stock Analysis Report

Chevron Corporation (NYSE:CVX): Free Stock Analysis Report

Pioneer Natural Resources Company (NYSE:PXD): Free Stock Analysis Report

Continental Resources, Inc. (CLR): Free Stock Analysis Report

Synergy Resources Corporation (SRCI): Free Stock Analysis Report

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