Eye on Insiders: Chesapeake Energy

Watching insiders is like participating in a weeks-long stakeout. You expect something to happen, but you don't know what. So you settle in, sip your coffee, and wait for clues to solving the big case.

Here, the "case" is direction: Which way is your stock headed? The "clues" come in the form of insider buying and selling action. Have a look at Chesapeake Energy (NYSE:CHK) over the past year.

Sources Form 4 Oracle, Capital IQ, and Motley Fool CAPS; data current as of Sept. 26.
*Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: bearish
Chesapeake Energy chief executive Aubrey McClendon was, at one time, the poster boy for successful insider buying. I sung his praises here in Fooldom over and over and over again. What I missed -- and this was a huge miss -- was the strategy behind McClendon's big-box stock buying. He was using margin.

McClendon hasn't bought shares recently. Margin calls have made him more of a seller. His company, too: Chesapeake last week sold a 50% stake in some natural gas gathering and processing assets for $588 million to a private equity partner, Reuters reports.

"Chesapeake isn't exactly my go-to example for good corporate governance," Foolish colleague and Motley Fool Inside Value analyst Joe Magyer says. "Still, I'm still bullish on them because I expect natural gas prices to take a solid post-recessionary bounce, with the shares of most natural gas producers in tow."

Fair enough. Yet even if the shares look cheap today, Chesapeake's last buyers were shopping between $13 and $24 per share. The biggest buys were made below $14 a share last October, by board member Richard Davidson and Executive Vice President Mark Lester. Knowing that, I find it difficult to like the stock at north of $27.

Do you agree? Disagree? Log into CAPS today and tell us how you would rate Chesapeake Energy.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here or use the comments box below. I'll write this column as often as you, our readers, demand.

Get more of the inside scoop with related Foolishness:

• Here's who I had my eye on last time.
• You can find better places for your emergency cash.
• Some insiders are behaving badly.
• A Fool times the market and wins. Sort of.