Who's Buying Now?

It's Tuesday, and that means it's time to check the most interesting insider purchases from the past week. After reading through numerous filings using insider tracking tool Form 4 Oracle, here are my top five from the past seven days:

The week's buying

Company

Closing price 12/23/05

Total value of stock purchased

52-week change

Cabot Corp. (NYSE: CBT  )

$36.32

$6,603,212

- 5%

Chesapeake Energy (NYSE: CHK  )

$32.16

$19,941,815

+ 97%

Cooper Companies (NYSE: COO  )

$51.27

$338,720

-27 %

Oakley (NYSE: OO  )

$14.96

$723,700

+ 15%

Reynolds & Reynolds (NYSE: REY  )

$28.04

$4,195,959

+ 14%

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle

Driving off with Reynolds
We begin this week with Reynolds & Reynolds, which provides information management and services to auto retailers. Don't worry if that sounds techie. While it may sell its share of modern equipment, Reynolds & Reynolds is a decidedly old company. So old, in fact, that its founders first teamed in 1866, the year after the last shot was fired in the War Between the States.

And it still retains some elements of its original manufacturing business. Indeed, Reynolds & Reynolds was one of the first to produce business forms of any type. It still does, in one of its four major divisions. But information technology aimed at improving dealer efficiency is the company's biggest business today. According to the latest available financial data (download an Excel spreadsheet), Reynolds & Reynolds has derived more than 80% of its revenue in each of the last three quarters from software.

That makes sense. I mean, really, if anyone needs the margin improvement that automation can provide, it's car dealers. But demand has been sporadic, and it shows in the company's results. Refer back to the Q3 spreadsheet. While third-quarter earnings improved from the year prior, Q1 and Q2 both fell short. And unless the firm grew fourth-quarter earnings by at least 22% -- the quarter ended Sept. 30 -- fiscal 2005 ended worse than 2004. (For reference, Q4 2004 income was down more than 34% year over year.)

We may not know the answer soon, though. Reynolds & Reynolds is facing questions from the SEC regarding its revenue recognition policies. It's taking extra time to answer them and, as a result, announced two weeks ago that it would delay its annual 10-K filing.

So why, then, did ValueAct CapitalPartners -- the same firm that made this column in October when it pursued Acxiom (Nasdaq: ACXM  ) -- buy roughly $4.2 million in stock in Reynolds & Reynolds last week? I've a theory, and it has entirely to do with dividends. Stay with me.

ValueAct is a private equity firm that's a self-proclaimed activist investor. (Indeed, Jeff Ubben, founder and managing partner, is presenting on the topic to the New York Society of Securities Analysts in February.) As such, he and his partners are likely to keep buying chunks of Reynolds & Reynolds until their stake is big enough to have a say in how the company uses its cash.

And Reynolds & Reynolds generates a fair amount of it. According to Yahoo! Finance, the company produced $106.5 million in owner earnings over the trailing 12 months but paid out only $28.3 million in dividends during the same period. That's a payout ratio of 26.5%. I suspect ValueAct would like to see a little more of that go to shareholders, especially when the company has managed to pay down its debt in each of the last three fiscal years and appears poised to do so again.

To China, Chesapeake?
Next up is a stock I've covered here many, many times: Chesapeake Energy. It's due for a refresh. That's because last week CEO Aubrey McClendon and company president Tom Ward combined to -- wait for it -- purchase $19.9 million in company stock.

It's anybody's guess as to exactly what's going on here, but it's worth noting that McClendon and Ward were buying at almost identical prices back in September. Now take a look at the six-month chart. Neither has bought at market lows, but they've got pretty good timing, nonetheless. At worst, it appears both men believe strongly in the underlying business.

But it may even simpler than that. It could just come down to the laws of supply and demand. Chesapeake, after all, was one of the few domestic natural gas producers to see no effect from Hurricane Katrina. Now come reports that the U.S. can't even import enough natural gas to accommodate our existing needs. And China faces the prospect of such a serious shortage of natural gas that it raised prices Monday, according to a BusinessWeek report. Maybe McClendon and Ward are seeing far more demand for their company's reserves than the Street yet realizes?

That's all for this week. See you back here next Tuesday when we dig through more insider deals in search of the next home run stock.

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Fool contributorTim Beyersusually favors two scoops of ice cream over the inside scoop. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.


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