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 10/24/06

Total Value of Stock Purchased

52-Week Change

General Electric (NYSE: GE  )

$35.42

$1,054,950

4%

HEICO (NYSE: HEI  )

$36.55

$251,269

57%

Kinder Morgan (NYSE: KMI  )

$105.98

$0

18%

Sealy Corp. (NYSE: ZZ  )

$13.56

$13,380

(22%)*

Universal Security Instruments (AMEX: UUU  )

$21.46

$8,075

59%

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle, SEC filings
*Sealy began trading on April 7, 2006

Sealy: Not as sleepy as you might think
Last week, we reviewed my three criteria for picking stocks for this column. To review, they are: obvious net buying over the prior 52 weeks; purchases from multiple insiders; and a story that makes sense.

Following these "rules" -- if you can call them that -- helps me to hunt down stocks that seem cheap from the management's point of view. But even these rules are made to be broken; there's simply no perfect method for identifying the best insider buys.

With that, it's time to meet Sealy, which makes conventional mattresses that compete with Motley Fool Hidden Gems pick Select Comfort (Nasdaq: SCSS  ) . The cabal of investors who follow the mattress maker at Motley Fool CAPS aren't terribly impressed with its prospects:

Metric

Sealy

Total ratings

26

Bullish ratings

13

Bull ratio

50%

Bearish ratings

13

Bear ratio

50%

Source: Motley Fool CAPS

They may be right. Form 4 Oracle reports that, on the whole, insiders have dumped more than $160 million worth of stock over the last 52 weeks. And while board member Gary Morin and chief financial officer Jeffrey Ackerman have teamed to buy roughly $83,000 in Sealy shares since July, that's a rounding error when compared to the selling.

Yet there's much more to this stock story. First, it's worth remembering that Sealy only re-emerged as a public company in April. That explains the selling, the vast majority of which was driven by buyout firm Kohlberg Kravis Roberts, which sold more than 6.7 million shares on the day of the offering, and then 3.5 million more less than a week later. (KKR was instrumental in bringing the firm private two years earlier.)

Meanwhile, the ensuing "recapitalization," as the prospectus calls it, has cleared off more than $150 million in debt while the shares trade for what appears to be a 22% discount to Sealy's expected growth rate over the next 12 months. Of course, that may prove to be wishful thinking. But my gut tells me that investors are writing off Sealy far too soon. Time will tell.

The buy that wasn't ...
Other times, a purchase looks better than it is. Consider the case of energy infrastructure provider Kinder Morgan, which plans to go private in the coming months. A check of SEC filings shows that Goldman Sachs (NYSE: GS  ) and entities related to the financier snapped up 2,000 shares last week. But then it sold exactly the same amount of shares the sameday. It's almost embarrassing to call these insider purchases, even though the SEC-mandated Form 4 filing says they are.

... And the buy that means more than meets the eye
On the other hand, Universal Security Instruments, a micro-cap maker of smoke alarms and other home electronics, has, like Sealy, seen loads of net insider selling in recent months. But I still call CFO James Ballard's meager $8,000 purchase a bullish sign.

Why? Three reasons, really. First, because it's a new position for Ballard. Second, because Universal insiders still own nearly 33% of the outstanding shares. And third, because Universal has expanded sales and gross profit by more than 20% annually over the last three years. That's an impressive growth story that will greatly enrich insiders if it continues.

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 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. 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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