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 2/28/06

Total value of stock purchased

52-week change

Diodes (Nasdaq: DIOD  )

$37.38

$1,094,315

120%*

FairpointCommunications (NYSE: FRP  )

$14.07

$142,780

(19%)*

Fossil (Nasdaq: FOSL  )

$17.02

$689,061

(34%)

Mellon Financial (NYSE: MEL  )

$36.09

$2,510,291

26%*

WCI Communities (NYSE: WCI  )

$25.24

$2,154,988

(27%)

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle, SEC filings.
*Adjusted for the effect of splits and/or dividends.


More about insider buying
Before we begin, I want to briefly touch on last week's announcement that I'd focusing more on C-level insider buying in future columns. Some readers received this news enthusiastically. One recommended a book that I believe may interest you: Investment Intelligence from Insider Trading, by Prof. Nejat Seyhun of the University of Michigan's Ross School of Business. I haven't yet read it, but what little I've gleaned from its description online makes me grateful to know about it. In fact, if enough readers are interested, I'll ask the professor for an interview. (Write me here if that's something you'd be interested in.)

Fair to Fairpoint?
Now, let's get on with the week's most interesting buying, beginning with Fairpoint Communications. I haven't exactly been a fan of this company, which provides communications services in rural areas throughout the United States.

I panned the stock because of its dividend, which yields a breathtaking 11.1% (according to Yahoo! Finance) as I write today. Back in December, it was closer to 14%. At the time, I named it one of four "dangerous dividends," because owner earnings didn't cover the cash cost of the payout. Instead, my calculations put the payout ratio (total cash outlay for dividends divided by trailing-12-month owner earnings) at 235%. Ouch.

Not surprisingly, Fairpoint's management disagrees with me, and at least one has put his money where his mouth is. Chief Financial Officer John Crowley spent more than $142,000 of his own cash between Monday and Tuesday to acquire 10,000 more shares of Fairpoint's stock. (He owns 70,000 shares in all, according to this filing with the Securities and Exchange Commission.)

Is Crowley right? Have I lost it? I'm reluctant to say one way or another. The firm reported earnings for the fourth quarter and full fiscal year, though. Checking the cash flow statement, my calculation of owner earnings available for dividends was $26.8 million. Fairpoint paid out $35 million in dividends during 2005. Operating cash flow net of capex comes in around $34 million, but that still doesn't include cash on acquisitions; it tipped the scales at just about $26 million last year, and the company has made several acquisitions since. Hmmmmm.

Mr. Crowley, if you're reading this, send me an email. I think our readers would love to better understand why you're still buying.

The last relic of Fossil
It's time to finally close the book on Fossil. Last week, I spoke with CFO Mike Kovar. He explained that Fossil CEO Kosta Kartsotis instituted a 10b5-1 trading plan after last year's third quarter, which authorized him to buy as many as 500,000 shares.

Kartsotis scheduled his buying for each Friday, with the first trade taking place Dec. 16. Trading was concluded on schedule on Feb. 24, when Kartsotis bought 40,398 shares for between $17.02 and $17.29 per stub. That brought his total buying since December to ... 500,000 shares.

Kovar can't say whether his boss will open another 10b5-1 trading plan. Considering the poor performance of both the business and the stock, I'd say such a filing is unlikely. But if I'm wrong -- and Lord knows I have been -- you, dear reader, will be among the first to know.

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. 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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