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

A portfolio workout with U.S. Physical Therapy
I've been thinking a lot about health-care stocks recently. Blame the Big Boom Report, in which several of us Fools chose stocks poised to benefit from the pending retirement of baby boomers.

U.S. Physical Therapy is just such a stock, although you wouldn't know it from this chart. Ouch! Maybe punitive selling of this somewhat speculative operator of stand-alone physical therapy centers is justified, but I don't see how. According to Capital IQ, the shares trade for less than 1 time revenue to enterprise value and 18.6 times 2006 earnings. And its 1.03 PEG ratio, while hardly a perfect indicator, strongly suggests the stock is anything but expensive.

So why the freefall? Motley Fool CAPS player staffier offers a thesis:

... Recently closed their smallest, low-patient volume, clinics, and promptly hit a 52-week low.

And yet he remains bullish on the shares, citing high returns on assets, respectable free cash flow ($9.9 million over the trailing 12 months), minimal debt, and a miniscule price-to-sales ratio. To that I'll add insider buying.

Indeed, there's been plenty of insider action, both before and after the announcement of clinic closings on Sept. 6. For example, chief financial officer Larry McAfee purchased 2,000 shares in early May. The next day, CEO Chris Reading scooped up 1,000 shares for himself.

Then, the week after the closings, board member Daniel Arnold exercised and held 18,000 shares earned through options that would have resulted in at least a three-bagger had he sold immediately, as most insiders would have. And finally, McAfee last week reduced his cost basis with another 1,000 shares purchased at $12.07 a stub.

Clearly, all of these executives see value in the firm well above the price at which U.S. Physical Therapy trades today. Given the startlingly low multiples at which the stock trades, I'm inclined to agree. But it's this statement by Reading from the release announcing the closures that sells me:

... Many of these clinics are located in markets we do not feel can support an acceptable level of patient volume and profitability. As a result of these closures, we will focus our resources on facilities, and within markets, where we believe growth opportunities continue to exist.

No doubt that was a painful point to make, especially after the haircut delivered by the market. But, long-term, isn't this exactly the sort of action investors ought to expect management to take? I'd say so. Accordingly, I'll be adding U.S. Physical Therapy as a long position in my CAPS portfolio later today.

Muscular buying at Omega Flex
There are times when I'm simply overwhelmed by the volume of insider buying in a stock. That's the case with Omega Flex, which participates in one of the most boring businesses I've yet encountered: selling metal hoses for moving gasses and liquids.

Don't laugh. A check of Capital IQ shows that free cash flow over the trailing 12 months equaled $10.8 million, which compares favorably to the firm's enterprise value of $181 million. Omega Flex also sports a pristine balance sheet with $8.6 million in cash and no debt.

That spells value to insiders. Since the dawn of 2006, four separate executives have bought shares, including president and CEO Kevin Hoben, who purchased 1,000 shares last week to add to an already sizeable stake. (Hoben owns 10% of the shares outstanding.)

With such a good story, you'd think Wall Streeters would be flocking to Omega Flex, but they aren't, which smells like opportunity to the enterprising investors in CAPS. All-star player se7ensparks says it best, so he gets the last word:

Unfollowed by analysts, this spin-off from Mestek seems to be posting some good growth numbers and positive free cash flow. I think it might be a sleeper-winner.

Time will tell, Fool. 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 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. Get the skinny on all of the stocks in his portfolio by checking Tim's Fool profile . The Motley Fool's disclosure policy is a strong buy.