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 12/12/06

Total value of stock purchased

52-week change

Church & Dwight (NYSE: CHD  )

$42.82

$105,431

29%

Cimarex Energy (NYSE: XEC  )

$37.37

$791,299

(10%)

Gateway (NYSE: GTW  )

$2.06

$78,819

(33%)

Walter Industries (NYSE: WLT  )

$48.52

$245,849

(1%)

WebMD (Nasdaq: WBMD  )

$40.80

$283,436

35%

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle, SEC filings

A hand for Walter
With all the housing bubble babble, you'd think investors would run screaming from the stock of homebuilder Walter Industries. Not so:

Metric

Walter

Total ratings

596

Bullish ratings

585

Bull ratio

98.2%

Bearish ratings

11

Bear ratio

1.8%

Bullish pitches

92

Bearish pitches

3

Source: Motley Fool CAPS

That's an overwhelmingly bullish sentiment. What gives? Perhaps it's that Walter does much more than build homes in the suburbs of Tampa, Fla. Coal mining and plumbing parts also contribute to sales, which are up an average of 40% annually over the last three years.

Yet the stock could still be cheap. Capital IQ says that, on average, analysts believe the stock trades for just less than 12 times next year's earnings, which are expected to grow by 15%. Dividing the totals results in a PEG of 0.80 -- code-speak for a stock that could be as much as 20% undervalued right now.

Could that be correct? Fellow Fool Shannon Zimmerman, who runs our Champion Funds service, seems to think so. In going to bat for Walter in our recent small-cap contest, he wrote that investors had been given an opportunity to buy shares on the cheap thanks to a summer setback in guidance.

Walter's shares have bounced around since, but the stock, at $48.67 as I write, trades nearer its 52-week low of $39.59 than its April high of $71.45. To me, that lends credence to Shannon's argument.

So does a brief pitch from CAPS player homstad20, who says there's an asset play at work inside Walter because of its 75% interest in Mueller Water (NYSE: MWA  ) . The result, our Fool writes, is that Walter's core coal business trades for a P/E "of around 4 when other coal/natural gas companies trade for at least 8-12 times earnings."

Perhaps that's why CEO Greg Hyland is buying? Last Tuesday, he purchased 5,000 shares at an average price of $49.17.

Regardless of the reasons, a large number of investors I respect have taken a liking to Walter. That list includes Bill Mann, who recommended the stock to Hidden Gems subscribers in the October issue. Sign up for 30 days of free access to the service to get the whole story. In the meantime, I'm adding Walter to my CAPS portfolio.

Is WebMD really wretched?
Some stocks leave me confused. Count WebMD among that list. Why? "Nosebleed" is too kind a word for this company's valuation.

Do the math. With WebMD projected to produce $0.38 per share in 2007 earnings, the stock trades for roughly 107times expected profits. That wouldn't be so bad if triple-digit growth was also on the way. But that's not the case; analysts expect 30% over the next several years.

History says that investing in stocks that trade for more than double their growth rate is a losing strategy. WebMD, priced at three times expected growth, is even worse off. Investing in its shares seems to me worse than adventurous. "Portfolio suicide" may be a better description.

There's just one problem: WebMD has been a stellar performer since first being singled out in this column in October of last year. Back then, the shares were trading for $27.90. The stock is up 44% since, easily besting the S&P.

Now, company chairman Martin Wygod is back buying shares. He spent $283,436 between Tuesday and Thursday of last week. Average price? $37.69 a stub.

I've serious doubts that the stock will rise to $54.27 for another 44% gain. But history says to watch this stock and this space. WebMD's pricey shares may yet find a way to continue defying logic and gravity.

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 contributorTim Beyers, ranked 1,251 out of 17,042 inMotley Fool CAPS, 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 Foolprofile. The Motley Fool'sdisclosure policyis a strong buy.


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