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 picks from the past seven days:

The week's buying

Company

Closing price 1/13/06

Total value of stock purchased

52-week change

Cabot Corp. (NYSE: CBT  )

$37.75

$4,653,642

+ 7%*

Chesapeake Energy (NYSE: CHK  )

$32.54

$1,559,870

+100%*

Hearst-Argyle Television (NYSE: HTV  )

$23.76

$1,451,160

- 6%*

Joseph A. Bank Clothiers (Nasdaq: JOSB  )

$48.19

$30,234

+ 67%

Sirius Satellite Radio (Nasdaq: SIRI  )

$6.28

$6,208,499

- 3%

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle
*Returns adjusted to account for the effect of dividends


A Sirius Purchase
First up this week is Sirius Satellite Radio, with which I've had a bizarre relationship over the past year. In March, you see, I was championing the company in the Fool's inaugural Stock Madness contest. My thesis was that Sirius's massive sales growth would be rewarded generously, leading to at least a double in five years. Months later, I changed my tune. I hadn't soured on the business's fundamentals so much as concluded that the stock was priced for expectations that couldn't possibly be met.

Looking back, I believe both conclusions were and remain correct in one way or another. Investors remain willing to pay a premium for Sirius -- 44 times trailing 12-month sales as of this writing. Yet good news almost never moves the stock higher. Indeed, when the company said it had three million subscribers in late December, easily surpassing previous guidance, the share price barely budged. And it's down roughly 10% since.

In other words, Sirius's stock is what some might call outrageously expensive. At least in terms of what we investors know right now, that's my best estimation. But the man with the crystal ball -- Sirius CEO Mel Karmazin -- apparently believes there's still plenty of value to be had. Thursday, he bought 1 million shares of Sirius for an average price of $6.21 per stub. It's also the second time Karmazin has bought stock in the company. Days after being named CEO in November of 2004, he bought 1.5 million shares. Today, his holdings comprise more than 5.5 million stubs, according to the latest filings with the SEC.

But there's much more to this story. According to the latest proxy filing with the SEC, Karmazin's buying could be intended to satisfy a condition of his employment agreement. Here are the specifics, found on page 14:

During 2004, the Compensation Committee formalized a common stock ownership requirement for all of our officers. Over a five-year period, all of our officers are required to acquire, and hold, shares of our common stock. Specifically, our Chief Executive Officer is required to acquire shares of our common stock having a value equal to or greater than five times his base salary...

The full impact of this requirement doesn't really sink in till you flip the page and get into the details of Karmazin's compensation package:

We pay Mr. Karmazin a base salary of $1,250,000 per year, and annual bonuses in an amount determined each year by the Compensation Committee of our board of directors.

Put together, these conditions dilute the value of Karmazin's purchasing. Or do they? Consider the math: $1.25 million per year for five years equals $6.25 million. Karmazin spent a little over $8 million to buy shares when he first joined the company, which makes Thursday's purchase completely free of obligation -- a very bullish sign.

Tuning in to Hearst
Next up is Heart-Argyle TV, which was created through the 1994 merger of Argyle Television and Hearst Broadcasting, which is a subsidiary of the privately held Hearst Corporation. Last week, Hearst Broadcasting bought more than 60,000 shares of the combined firm. Yet this was but one of many weeks filled with stock buys over the past two years. A little digging may help explain why.

First, a check of the latest proxy, filed last April, shows that Hearst Broadcasting owned 100% of the outstanding class B shares -- or 41,298,648 -- and 42.6% of the outstanding class A shares -- or 21,950,509. Combined, that equaled 68.2% of all available voting shares. Its class A position has since grown to 24,315,510 stubs, raising its total ownership position 70.7%. I suspect the buying will continue, if only because there's no reason for it not to.

It certainly can't be for the profits. The stock has barely registered a pulse over the past five years. The only reason to buy the shares, then, is to build an ever-larger controlling stake. And that only makes sense if Hearst wants to take Hearst-Argyle private. I'm guessing that's exactly the plan.

The reason, you ask? Private Capital Management. Since September of 2004, the hedge fund has more than tripled its stake in Hearst Argyle. And most of the buying came during 2005. Between January and September, PCM added more than 4.5 million stubs to its portfolio, raising its total ownership interest to 7.6%.

That's interesting, because PCM is the same firm that has been pushing Knight Ridder (NYSE: KRI  ) , of which it owns 19%, to sell itself. I doubt it could exact the same pressure on management at Hearst-Argyle, but a growing stake and a flatlining stock price raise the possibility. And there's only one way to avoid that outcome for certain: Go private.

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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