Oil execs snap up shares, but wait a bit to follow suit
Posted: June 02, 2015
Chief executives at some major energy companies are buying their own stock.
Lee Tillman of Marathon Oil Corp. (MRO) and John Hess of Hess Corp. (HES) recently snapped up $748,566 and $3,997,800 respectively of their own shares.
Does this mean it’s time to buy energy stocks? On the whole, I suspect it is still a few months too early.
The price of oil has probably hit bottom, but for many companies, there are several quarters of feeble earnings ahead. I don’t think investors are prepared for those bad profit figures.
The probable re-entry of Iran to world oil markets in a major way could shake investors’ confidence regarding oil prices, even though I think the January bottom of just under $50 a barrel will hold.
If you do want to buy energy stocks, I believe the industry giants like Marathon and Hess are the best bets now. Historically, this group has done relatively well after big drops in the oil price. They have strong balance sheets, pay good dividends and can benefit from industry turmoil by snapping up weak competitors.
OIL PATCH BUYS
At Marathon, Tillman bought 28,791 shares in March, paying $26 a share. Marathon shares closed last week at $27.19.
John Hess purchased 28,753 shares in February at $69.52 a share, and director William R. Marks spent $507,423 in March to buy 7,300 shares at $69.51 each. Meanwhile, several other officers and directors were selling shares. The stock ended last week at $67.52.
The chief executives of three major drilling companies bought shares recently.
In April, David W. Williams, CEO of Noble Corp. (NE), bought 10,000 shares at $31.03. Lately, it’s at $16.75, so one might say Mr. Williams was a little early.
Back in December, Steven L. Newman, CEO of Transocean Ltd. (RIG), purchased 9,800 shares at a cost of $200,018. Transocean then fetched $20.41 a share. The recent price is $18.85.
And way back in September, when the slide in oil prices was about halfway through (with the benefit of hindsight), Carl Trowell, CEO of Ensco PLC (ESV), made a purchase he may now regret. He bought 2,200 shares at $47.04. The stock has since been cut in half to $23.50.
With prices down violently from their levels a few months ago, it’s tempting to buy the oil drillers. But drilling budgets are being slashed. I could be wrong, but I think you will be able to get these stocks at even better prices a few months hence.
BLACKROCK CAPITAL
Now let’s turn to a few insider trades of note, outside the oil patch. I’ll start with BlackRock Capital Investment Corp. (BKCC), where chief executive Steven Sterling bought 20,000 shares May 14 for $9.40 a share.
BlackRock Capital was known until March as BlackRock Kelso Capital Corp. It is a business development company that makes loans to large and mid-sized private businesses. It is affiliated with BlackRock Inc., the world’s largest money management firm.
Most analysts don’t care for this stock, but I find it attractive at about six times earnings and 0.9 times book value (corporate net worth per share).
DARDEN
At Darden Restaurants Inc. (DRI), profits have been down lately. However, chief executive Eugene Lee Jr. spent $508,804 to buy 7,600 shares in April.
Darden is the parent to Olive Garden, LongHorn Steakhouse, Capital Grille, Yard House and other chains. It sold off Red Lobster in 2014.
Analyst opinion on Darden runs negative, with 11 analysts favoring the stock and 16 faint-praising it as a “hold.” For my part, I like it, partly because the wind seems to me at its back.
Americans are feeling a little better about their finances and are eating out more. Recently, the revenue at restaurants surpassed the revenue of grocery stores for the first time.
Olive Garden is making a comeback among younger diners. Yard House, featuring craft beers, is a growing contributor. Personally, I’m a big fan of Capital Grille, which I often patronize on my birthday.
TRACK RECORD
I’ve tabulated results for all of my columns on insider buying from February 1999 through June 2014. During that time, I’ve recommended 49 stocks on the basis of insider buying. Those stocks have beaten the Standard & Poor’s 500 by 6.7 percentage points on average, over 12 months.
By contrast, the 17 stocks where I noted insider selling have trailed the S&P 500 by half a percentage point.
Bear in mind that the performance of my column picks is hypothetical, doesn’t take trading costs or taxes into account and shouldn’t be confused with the results on actual portfolios I manage for clients. Moreover, past performance doesn’t predict future results.