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 now:

The week's buying

Company

Closing Price 4/4/07

Total Value of Stock Purchased

52-Week Change

Evergreen Energy (NYSE:EEE)

$6.55

$234,597

(65%)

Flagstone Reinsurance (NYSE:FSR)

$13.57

$22,407,300

2%*

Gray Television (NYSE:GTN)

$10.60

$5,939,452

27%

Midwest Banc Holdings (NASDAQ:MBHI)

$17.70

$348,352

(30%)

Youbet.com (NASDAQ:UBET)

$3.26

$74,420

(35%)

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle, SEC filings
*Flagstone Reinsurance began trading on March 30, 2007. Includes a $19 million purchase by Silver Creek Capital Management.

Making a bet on Youbet
Rarely does a penny stock capture the attention of one of our Foolish founders. But that's what Youbet.com, which uses the Web to make it easier to bet the horses, has accomplished: David Gardner clicked outperform in Motley Fool CAPS in September, only to see the stock drop 19% in the months since.

What gives? A fourth-quarter loss didn't inspire confidence. And the Unlawful Internet Gambling Enforcement Act, which Congress passed at the end of September, had investors panic selling anything that connected the words "Internet" and "gambling." (See for yourself).

But David and the other professional and amateur investors participating in CAPS have remained patient:

Metric

Youbet.com

CAPS Stars (5 max)

****

Total Ratings

164

Bullish Ratings

155

Bull Ratio

94.5%

Bearish Ratings

9

Bear Ratio

5.5%

Bullish Pitches

22

Bearish Pitches

2

Data current as of April 4, 2007.

For some, like CAPS investor gregous19, the thesis is simple. Quoting from his pitch for the stock:

"[Youbet] is safe from the anti-poker act by Congress. They have a license due to their horse racing, which makes their business the one and only legal one.... Gambling is the business where the house ALWAYS wins; become the house."

Good point. To that, I'll add that on the whole, analysts are extremely bullish about the long-term prospects for Youbet. They see 32% average annual growth over the next five years, which, when compared to the stock's P/E, results in an extremely attractive 0.71 PEG ratio.

That appears to be enough for management. Three different executives and directors, including CEO Charles Champion, have bought shares on the open market since last Wednesday.

But are expectations for 32% annual growth realistic? Why not? Most horseplayers I've seen -- and I've seen many in my varied excursions to Vegas -- grow roots in their seats as they bet on race after race after race. Most of these guys were last seen upright during a Joey Bishop performance.

Gregous19 is right; it's good to be the house when it comes to gambling. With a startlingly low PEG, a protected franchise due to government regulation, and a business where growth is practically assured, I'm willing to chance adding Youbet to my CAPS portfolio.

Evergreen may not be brown and brittle
Stocks that have yet to produce earnings don't scare me. Being a contributor to the Rule Breakers team, I'll invest in any company that couples high growth with a durable competitive advantage.

Trouble is, judging what constitutes a competitive advantage is far more art than science. That's why I like to see managers of potential Breakers become heavily invested in the businesses they run. Their faith is like an insurance policy for outsized returns.

With Evergreen Energy, insiders are buying in droves and founder Ted Venners, also a recent buyer, still holds 4.6% of the outstanding shares. That's a pretty strong endorsement.

The compensation policy also seems fair. CEO Mark Sexton, for example, earned $21,667 in salary during 2006. And his 1 million shares of restricted stock vest over seven years and are connected to "meeting share price targets for our common stock, gross revenue, or net operating cash flow targets."

But Evergreen isn't without problems. First, its clean coal business, known as K-Fuel, is suffering. From the most recent 10-K annual report:

During the year ended December 31, 2006, we recognized $420,000 of revenue related to shipments of K-Fuel refined coal in our Plant and Licensing segment. K-Fuel refined coal sales were less than expected, primarily due to less production at our Fort Union Plant. In addition, we sold a portion of our K-Fuel refined coal at discounted rates. [Emphasis mine.]

Second, Evergreen Energy is merely the most recent moniker for what was once KFx. If you're thinking the change was clever PR to align the firm with the glow that surrounds alternative energy, I'm with you.

Finally, every bit of Evergreen's 3,631% revenue growth was acquired through last year's $39.1 million buyout of coal miner Buckeye Industrial Mining.

And what of the insider buying? Management may yet be proven prescient, but I'll wait till K-Fuel finds its spark before investing a dime in the shares.

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

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Fool contributor Tim Beyers, who is ranked 832 out of more than 25,400 in CAPS, usually favors two scoops of ice cream over the inside scoop. Tim didn't own stock in any of the companies mentioned in this story at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on insider buying, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy is a strong buy.


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