Who's Buying Now?

It's a new 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 9/26/06

Total Value of Stock Purchased

52-Week Change

BabyUniverse (Nasdaq: POSH  )

$7.38

$1,999,998

(10%)

Green Mountain Coffee (Nasdaq: GMCR  )

$36.75

$14,784

8%

Nelnet (NYSE: NNI  )

$29.89

$0

(18%)

NeoPharm (Nasdaq: NEOL  )

$5.02

$99,903

(60%)

Reynolds American (NYSE: RAI  )

$60.00

$123,485

46%

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

Newfound optimism at NeoPharm
After years of mistakes, I've come to realize that successful investing is most often a product of unemotionally following a disciplined routine. But that's much easier said than done, especially for a rebellious growth guy like me. So anti-establishment am I that the editors have seen fit to assign me to the Motley Fool Rule Breakers team.

Still, I follow a few rules when picking fast movers for my portfolio. Most important is a committed management team with a big stake in the company I'm researching. Or, in lieu of that, a group of new managers that are buying shares to build a stake. Either one indicates faith that, over the long term, the business case will play out as expected.

Enter NeoPharm. Most days, I'd ignore this biotech (my expertise lies elsewhere). But a combination of already-significant insider ownership coupled with recent buying has me intrigued. Last Thursday, for example, chairman of the board John Kapoor purchased 20,000 stubs. That followed buying from board member Kaveh Safavi in August and CEO Guillermo Herrera in June.

We can only speculate on why this triumvirate of executives has seen fit to buy stock now, but I like the thesis offered by Motley Fool CAPS player Worldfrog:

This is essentially a bet that [NeoPharm] will get approval for its lead drug for brain cancer, currently in phase III trials. I expect some volatility in the meantime, but final results of the trials should be available in early 2007.... There are three other drugs in the pipeline as well, so it's not a one-shot wonder, and the company still has complete marketing rights to those drugs. I'm assuming that the company's lead drug will be approved.

In other words, NeoPharm could very well go to zero if the Feds decide its brain cancer treatment isn't up to snuff. However, substantial insider buying suggests that that outcome is, at best, remote.

Casting a Nelnet
Recently, I've spent time in this column debunking faux insider buying. Not that there's anything seriously fishy going on here. It's just that SEC filings can be woefully misleading if not examined in context.

Which brings me to student loan financier Nelnet; the company filed three separate form 4s yesterday. One made it appear as though chairman and co-CEO Michael Dunlap purchased 400,000 shares. Then a second filing from Farmers & Merchants Investments revealed that the purchase was actually performed by that firm, for which Dunlap serves as president and board member. Finally, a third form 4 shows that Farmers had conducted a private transaction with Nelnet co-CEO Stephen Butterfield.

In other words, Butterfield's shares were transferred to Dunlap's investment firm. Exactly zero net buying occurred. That can't be good news for bullish investors, who've bid Nelnet's stock higher by more than 3% as I write today.

And that's all for this week. 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 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. Get the skinny on all of the stocks in his portfolio by checking Tim's Foolprofile. The Motley Fool'sdisclosure policyis a strong buy.


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