Insiders who own stock or options in the companies they work for can sell stock for a variety of reasons that may include diversifying their portfolio, paying for a new home, or even paying for a child's college education.
But when insiders put their own money to work by buying stock on the open market it's something investors shouldn't ignore. Insiders know more about how a company is run and the industry they're in than anyone, and if they're bullish enough to buy the stock maybe we should be too? The market has sold off energy stocks sharply over the past few months, but there have been three notable insider purchases that may give you second thoughts about giving up on these companies.
Energy Transfer Equity L.P.
Oil producers have been hit hard by the fall in the price of oil but some midstream companies -- who move oil and gas around the country, process it, or store it for later use -- have taken a beating as well. One that took a fall until a big insider stepped in was Energy Transfer Equity L.P. (NYSE:ET). The company owns the general partner and stockholder of Energy Transfer Partners L.P. (NYSE:ETP) and Regency Energy Partners L.P. and 100% of the incentive distribution rights (IDRs) for both companies. This means that Energy Transfer Equity L.P. owns the controlling interest in both subsidiaries and the IDRs mean that when either company increases its distribution, or dividend, to shareholders Energy Transfer Equity gets an even bigger cut of the payout as a reward.
Energy Transfer Equity L.P.'s exposure is in midstream, pipelines, processing, and holding services for the oil and gas industry. So while they may be affected by energy prices, they're somewhat insulated because they're not an actual producer.
When the stock cratered earlier this month director and billionaire Kelcy Warren saw it as a buying opportunity and quickly bought 1,178,567 shares at prices ranging from $49.01-$53.55 per share. That's a big acquisition and by the time Warren was done buying he had spent $60.5 million on shares.
An insider with as much experience in energy as Warren certainly knows a thing or two about energy and if he's bullish when the price drops it tells investors not to panic over the market's short-term moves. Energy companies aren't going anywhere and midstream may be more important than ever with U.S. energy production continuing a decade long boom.
One of the stocks hardest hit by the recent decline in oil prices is Seadrill (NYSE:SDRL), the owner of offshore drilling rigs. One of its challenges is that Seadrill is a highly leveraged rig owner with billions in new rigs coming in the next three years and billions more in dividend obligations at the current yield. Add all of that together and you have a risk the market hasn't wanted to take in recent months.
But one man who does want to take a risk on Seadrill is founder and chairman John Fredriksen. He bought 2 million more shares of Seadrill stock on Sept. 23, increasing his stake in the company to 23.3%.
No doubt, there are some challenging times ahead for Seadrill but it has one of the newest fleets in the industry, long-term contracts to fall back on, and an owner who's willing to bet on the company along with investors. Fredriksen has said that the current lull in the offshore drilling market won't last long-term and he's putting his money where his mouth is. That's a good sign for Seadrill's investors.
A much smaller but equally notable acquisition was also made by relatively new Devon Energy (NYSE:DVN) board member John Bethancourt on Oct. 15. He purchased 9,150 shares for $54.64 per share, putting $500,000 of his own money to work in the stock and nearly tripling his position in Devon Energy.
This acquisition may not come with the same splashy numbers as Kelcy Warren or John Fredricksen's share purchases, but Bethancourt is also the only non-billionaire on this list and has become very bullish on Devon Energy since becoming a board member.
More than any of the other two companies, Devon Energy is a bet on falling domestic exploration costs and rising oil and natural gas prices long-term. If insiders are bullish on those trends maybe we should be too.
Money talks and in the case of insider acquisitions of stock it's the loudest way insiders can tell investors they like what a company is doing. These are three significant purchases that should at least make investors go back and look at these stocks one more time. Energy stocks have been hit hard by the market but if these insiders are right they'll be back before long.