Who's Buying Now?

It's Tuesday, and that means it's time to check the most interesting insider purchases from the past week. After checking 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 11/28/05

Total value of stock purchased

52-week change

Cabot
(NYSE: CBT  )

$34.86

$3,542,383

-6%*

CorVel (Nasdaq: CRVL  )

$16.36

$481,863

-49%

Integrated Alarm Services (Nasdaq: IASG  )

$2.82

$346,926

-33%

Midway Games (NYSE: MWY  )

$22.60

$4,435,437

110%

UTStarcom (Nasdaq: UTSI  )

$8.40

$397,045

-55%

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle
*Returns are adjusted to reflect payment of dividends.

Sometimes it pays to be a copycat
Let's start this week with Cabot, a specialty chemical maker that dates back to 1882 and is headquartered in Boston. It's also the subject of this past week's largest purchase at more than $3 million worth of company stock.

I'm profiling it here because the investing case for these shares is anything but obvious. Indeed, a check of the recent earnings release shows that the company booked a $44 million net loss for fiscal 2005. Gross margin was down a bit more than 4% from fiscal 2004. And free cash flow -- operating cash flow minus capital expenditures -- through Q3 was negative $20 million, not including $40 million in dividend payments over the same period, according to Yahoo! Finance. No wonder the stock has slipped 8% during the past 52 weeks.

Yet private investing firm SPO Group sees something the rest of us don't. And that could be instructive, for SPO has made some great investments, including Fool favoritePlum Creek Timber (NYSE: PCL  ) . SPO's latest 13-F filing says it no longer owns Plum Creek shares, but according to this site, in 1999 the group owned 27% of the outstanding stock and had been a controlling shareholder since the early '90s. Have a look at how that worked out.

Three principals, all of whom earned their M.B.A. degrees from Stanford University, lead SPO, which is based in plush Mill Valley, Calif. Its $2.6 billion portfolio of public holdings is diverse, but it seems the company favors any stock that would leave most investors scratching their heads. Take Advent Software (Nasdaq: ADVS  ) and its sky-high trailing P/E of 99 and stratospheric price-to-earnings-to-growth (PEG) ratio of 3.57. Here's a company that analysts believe will grow earnings less than one-third slower than the price tag its stock says it should. As if that bothers SPO. It owns more than 6 million shares, or more than 20% of the company.

More interesting, though, is when SPO first bought up the shares. According to a check of the 2002 and 2003 proxy statements, SPO went from owning less than 5% of Advent's shares outstanding -- maybe zero? -- to more than 15% as of Feb. 28, 2003. Now have a look at the company's five-year stock price chart. Yowsa. I'll come short of saying you ought to base your investing strategy on what other proven investors do. But there's probably a lot more to Cabot than meets the eye. And exactly none of it is obvious. Which probably suits the partners at SPO just fine.

UTStarcom a best buy?
Next up is a stock I opposed in our Stock Madness game earlier this year: UTStarcom. Fools sided with my argument that the shorts -- who still account for more than 18% of the shares outstanding -- had good reasons to believe they'd profit from seeing the shares fall. Well, they have. The stock is down more than 55% over the past 52 weeks.

Lackluster business performance hasn't helped. But the IP telephony industry is an incredibly high-growth business. In fact, I have benefited from it, as a user of Skype. In Asia alone, the market for voice over IP (VoIP) is growing by $1 billion per year and should reach $10 billion by 2009, according to industry analyst firm In-Stat. China is a major market for UTStarcom.

And here in North America, VoIP kits are starting to make their way into the hands of Joe and Jane Oddlot, with the help of retailers like Radio Shack. That's interesting because this week's insider stock purchase comes from Allen Lenzmeier, who is the vice chairman of Best Buy. Lenzmeier has been a member of UTStarcom's board since March, according to this proxy filing. And his purchase of 50,000 shares constitutes, according to this filing, the first shares of the company he's owned. Is the timing a coincidence? Or will you soon be seeing UTStarcom handsets on the shelves of your local Best Buy? Time will tell.

That's all for this week. See you back here next Tuesday 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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