You're Not the Only One Buying Here

Famed money manager Peter Lynch gave us the inside scoop on how to look at insider transactions. Executives can sell their stock for any reason, he said, but they buy for only one: They think the price is going to go up!

Today, I've highlighted a handful of insiders who have made big purchases of their own company's stock in the past week. These aren't executives getting big chunks of shares from option grants. Rather, they're insiders putting their own money on the line by buying shares at market prices. I then paired that information with insights from the members of Motley Fool CAPS to see whether they think the stock has the same prospects the insiders do.

Stock

Insider, Position

Market Value of Transactions

CAPS Rating (out of 5)

El Paso (NYSE: EP  )

Douglas Foshee, CEO

$0.5 million

****

LinkedIn (Nasdaq: LNKD  )

A. George Battle, director

$1.1 million

*

Valeant Pharmaceuticals (NYSE: VRX  )

Robert Chai-Onn, executive VP

$0.5 million

***

Sources: wsj.com; Motley Fool CAPS.

Although following the lead of insiders can be profitable, we still recommend you do further due diligence to determine whether these stocks ought to be sold from your own portfolio -- or would make a good addition! This isn't a list of stocks to sell or buy, but just the inside track on companies you might want to check out further.

Hurry up and wait
Maybe El Paso's CEO is looking to cash in on the $0.60-per-share dividend his company will sport after spinning off its exploration and production division. El Paso will still have its pipelines, midstream assets, and interests in El Paso Pipeline Partners, so it's apparent that management believes being the toll taker will prove a lucrative business. Williams (NYSE: WMB  ) and Marathon Oil (NYSE: MRO  ) have also announced similar breakup plans.

The faith invested in the natural-gas leader comes even though the stock trades at levels it hasn't seen since 2008, though that could be related to El Paso's stated belief that it can offer up low-double-digit dividend growth. Essentially, CEO Foshee is saying, "Yes, our stock is high, but it's poised to go higher still."

And why not? The International Energy Agency says natural gas is on the cusp of a "golden age." Natural-gas pricing has moved higher, to just under $5 per thousand cubic feet. The number of rigs drilling for natural gas has risen. And inventory in underground storage is more than 1% below the five-year average.

CAPS member cphillips103 agrees that El Paso's resurgence marks only the latest progression to still higher levels: "Natural gas company that has made a strong comeback in the last few years. Natural gas prices are fairly low, but demand will increase over time as the country moves towards alternatives from oil."

Let us know on the El Paso CAPS page whether you think the natural-gas leader will be able to do more by doing less.

Revenge of the nerds
It's obvious that LinkedIn's IPO was a failure, at least for the social-networking group itself. Its investment-banking advisors left millions of dollars on the table. Anyone who bought shares at $122 a stub since can't be too happy, either, now that the stock has fallen 32% from that high. It seems a familiar pattern, as Renren (Nasdaq: RENN  ) , the supposed "Chinese Facebook," has cratered by 46% from its post-IPO highs. Will we see more of this story when Groupon, Facebook, and Twitter have their debuts?

To his credit, director Battle was buying LinkedIn at the IPO price of $45 a share, and even though the stock has sagged from its stratospheric pop, at $78 a stub he's still sitting on a pretty profit. Yet is it worth even that? The CAPS community seems to think not.

No doubt because of the hype surrounding the IPO, a lot of investors were motivated to give their opinion on its prospects, but 90% of those weighing in doubt it can live up to the buzz. They're fully expecting the social-media bubble to burst sooner rather than later.

LinkedIn's one-star CAPS rating suggests that members think there are much better places for your money, but add it to your watchlist to see whether this stock will ever link up with growth.

A transforming event
The acquisition of Biovail by Valeant Pharmaceuticals continues to pay off. Last quarter, organic revenues jumped by7% as strong growth in specialty pharmaceuticals and branded generics charged the performance. Valeant is seeking to keep that momentum going by scooping up Lithuanian generics maker Sanitas, giving it a chance to expand in Europe. It had tried to buy Cephalon but was beaten out by Teva Pharmaceuticals (Nasdaq: TEVA  ) .

With 88% of the CAPS All-Stars betting that Valeant will outperform the market, it's clear that the setback with Cepahlon didn't faze a lot of investors. There are plenty of other opportunities out there, as the Sanitas deal shows, and management fully expects organic growth to be as strong as what it just achieved. Its executive VP and general counsel is undoubtedly expecting better than generic results.

Make your prognosis known on the Valeant Pharmaceuticals CAPS page, and follow along on its progress by adding the stock to your free Foolish portfolio tracker.

On the inside track
Following the insiders can be a path to profits, but it pays to start your own research on these stocks at Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Sign up today for the completely free service, and tell us whether you think it's worth trading on this inside information.

The Motley Fool owns shares of Teva Pharmaceuticals and El Paso. Motley Fool newsletter services have recommended buying shares of Teva Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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