Chief Executives Buy at HighPeak Energy and MRC Global
Posted: September 10, 2024
September 9, 2024 (Maple Hill Syndicate) – Jack Hightower is a well-known guy in the oil business. His company, HighPeak Energy Inc. (HPK), based in Fort Worth, Texas, is barely known by investors.
In late August and early September, Hightower spent more than $2.8 million to increase his stake in HighPeak, a company he founded. That brings the value of his total holding to about $66 million (as of Sept. 6), or close to 4% of the company’s market value.
Investors might want to pay attention to Hightower’s purchase, because he has a history of profitably selling companies he founded.
Hightower founded Titan Exploration in 1995; it later became Pure Resources Inc. In 2002 he sold Pure to Unocal.
He co-founded Celero Energy Co. in 2004 and sold it to Whiting Petroleum in 2005 for more than $800 million.
Would Hightower be willing to sell HighPeak at the right price? I don’t see why not. I imagine such a step would be several years away. Hightower, in my opinion, would be crazy to try to sell the company now.
Investors aren’t itching to invest in oil and gas at present. HighPeak traded above $30 for most of 2022. Today the shares go for less than $14. Correspondingly, a barrel of oil today fetches about $68. It sold for more than $100 a barrel in much of 2022.
I don’t think that wind and solar alone will be able to meet Americans’ demand for energy in the next five years. I expect a rebound in oil & gas, as well as nuclear energy.
HighPeak has net acreage of about 51,000 acres in west Texas and eastern New Mexico. (It’s “net” because many parcels are jointly owned.) That’s the Permian Basin, which for decades has been one of the lowest-cost places to hunt for oil and gas in the United States.
My favorite Permian play is Diamondback Energy (FANG). But I also look favorably on HighPeak shares, selling for less than 12 times the past four quarters’ earnings and only seven times estimated forward earnings.
MRC Global
Another company where the CEO has an appetite for his own stock is MRC Global Inc. (MRC). The company produces pipes, valves and fittings used in oil and gas production, especially in what the company calls “extreme operating conditions.”
MRC has shown a profit in only six of the past 10 years. If you’d held its stock for the past 10 years, you’d be sitting on a 50% loss.
Adding insult to injury, Zacks Investment Research last month published a piece on “Reasons Why You Should Avoid Betting on MRC Global.” The Zacks analysts said the company “has failed to impress investors with its recent operational performance due to weakness across its business and high debt levels.”
Is this stock a dog? The company’s president and CEO, Robert Saltiel, clearly doesn’t think so. In August he spent $240,600 to add 20,000 shares to his holdings.
That gives Saltiel a total of 790,583 shares, worth $9.6 million at the September 6 price.
The stock is fairly cheap by most of the ratios I look at. It’s particularly cheap relative to the company’s sales, clocking in at only 0.33 times sales.
Even though sales and earnings were down in the latest 12 months, Wall Street analysts are bullish on MRC. Only five analysts cover it, but four of them rate it a buy.
The initials MRC came from a merger. In 2007, McJunkin Corp. merged with Red Man Pipe and Supply Co. to form McJunkin Red Man Corp., or MRC.
Track Record
This is the 71st column I’ve written about company insiders’ buys and sells. I can tabulate one-year returns for 61 column, which includes all those written from February 1999 through a year ago.
There were 14 stocks where I noted insider buying but didn’t make a clear recommendation. Those have beaten the Standard & Poor’s 500 Total Return Index by 16 percentage points.
The stocks where I’ve noted insider selling have underperformed by a little more than two percentage points compared to the index.
Stocks that I recommended on the basis of insider buying have roughly matched the S&P 500, trailing it by two tenths of one percentage point.
Finally, there were stocks that showed insider buys, but that I said to avoid. Those have trailed 24 percentage points behind the index.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Disclosure: I own Diamondback Energy personally and for most of my clients.
John Dorfman is chairman of Dorfman Value Investments in Boston, Massachusetts. His firm or clients may own or trade the stocks discussed here. He can be reached at jdorfman@dorfmanvalue.com.