Who's Buying Now?

It's the middle of the week, which means it's time to check the most interesting insider purchases. 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 5/2/06

Total value of stock purchased

52-week change

Aetna
(NYSE: AET  )

$39.82

$1,016,059

5%

American Express (NYSE: AXP  )

$52.53

$915,450

(1%)

EnterpriseProducts Partners (NYSE: EPD  )

$24.88

$37,297

(3%)

ITTEducational Services (NYSE: ESI  )

$64.60

$4,879,531

26%

United Bancorp (Nasdaq: UBCP  )

$11.00

$65,650

(15%)

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

Is Aetna all right?
Buying into shares that are dropping like a boulder is so dangerous that the practice has earned an ominous name: to catch a falling knife. If that sounds painful, well, it sometimes is. Consider the case of Silicon Graphics, which many believed would be a stock for the ages in the early '90s, including Fool co-founder and Motley Fool Hidden Gems co-captain Tom Gardner. Whoops.

But loading up on beaten-down stocks can often be a wise strategy. Otherwise, Philip Durell's picks for Inside Value wouldn't be beating the market by more than 3% as I write today. That's important context as we dig into Aetna, our first profile.

It has been a tough week for the insurer. Member data has been reported stolen. The chief financial officer and the chairman have announced retirement plans. And earnings? Though decent in terms of the straight numbers, Aetna's medical cost ratio -- that is, medical costs as a percentage of premiums -- rose by nearly 2 points. That terrible triumvirate combined to send the stock 21% lower the day of the earnings report.

CEO Ronald Williams responded as an astute value investor might: He bought shares, 26,000 of them to be precise. And while he didn't buy at the bottom -- his average cost of $39.08 was 12% higher than the recent low -- he's still bulking up his position at a 25% discount to the 52-week high Aetna's stock reached in February.

Should he continue to expect outsized returns? That's debatable. At issue is whether Aetna is going to continue experiencing cost increases that will cut into its ability to bring premiums through to the bottom line. Williams doesn't think so; he said as much on Monday. In a conference call with analysts, Williams projected that Aetna's normalized 79% medical cost ratio would remain relatively consistent.

If that's true, then this past quarter could actually be encouraging for Aetna investors. Stabilizing costs would allow the insurer to once again expand margins, which in turn would allow for bigger gains in per-share earnings. Put differently: This knife may not be as sharp as it once seemed.

Call timeout on ITT?
In past columns, I've profiled Blum Capital's buying of ITT Educational Services shares. Well, the purchasing has continued unabated in the months since I last covered the company. In that time, the stock is up 31%. Now there's a twist to report.

Let's begin with the basics: Last Thursday and Friday, Blum bought more than 76,000 shares of ITT. That's a pretty bullish sign, especially when you consider the recent movement of the stock.

But remember: the twist. In February, ITT CEO Rene Champagne filed a 10b5-1 trading plan for a portion of his holdings. The selling began in March. And while it's not necessarily a bearish sign, seeing the sale of roughly 43,000 shares in 30 days didn't exactly leave me warm and fuzzy. Yet, believe it or not, this may be a bullish sign.

I know, I know; that sounds weird. Let me explain. A further examination of Champagne's selling shows that he held 101,188 shares before the 10b5-1 trading period began. His first transaction, completed March 1, involved selling shares acquired through heavily in-the-money options. He acquired 22,500 more shares through options one month later. And again he sold a portion. Portion is the operative word here, Fool. It turns out that, for all of Champagne's selling, he held 105,988 shares after the big March/April liquidation, leaving him with 4,800 more stubs than he held in February. Interesting, eh?

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

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Fool contributor Tim Beyers usually 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 Fool profile. The Motley Fool has an ironclad disclosure policy.


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