As the sharp selloff continues in the markets, I looked to the Insiders section of the GuruFocus website to see if any company executives are demonstrating faith in their companies by buying more shares. In the last two corrections large amounts of insiders stepped in and bought their stock near the lows. Who else is there to know better about a company’s future prospects than its own executives?
Looking at the insider trade activity, three companies stood out with each insider buy having its own unique characteristic. These three companies are Walgreen (WAG), Energy Transfer Equity (ETE), and Natural Resource Partners LP (NRP).
Walgreen Corp (WAG, Financial)
Market Cap: 58.42 Billion, P/E: 21.00, Dividend Yield: 2.11%
Business Predictability: 3.5/5, Financial Strength: 6/10, Profitability & Growth: 7/10
Known activist investor Barry Rosenstein of Jana Partners LLC bought $77.3 million of Walgreen stock from October 10 to October 14. 1.25 million shares were purchased at the average price of $61.86. Rosenstein was appointed to the board of directors in September. He recently pointed out that Alliance Boots, a company taken over by Walgreens, has margins that are twice as high. He will be working with the rest of the board to help Walgreen become more efficient, and hopefully raise the profit margins to his expectations. Walgreen is the well-known drug store operating in the United States. It has been experience a decline in net margin at an annual rate of -4.97 percent over the past five years. The stock is currently overvalued with its 7.6 percent average annual growth rate in EPS over the past 10 years. This will be a great accomplishment for the activist investor if he can help Walgreen get its margins back up.
Energy Transfer Equity LP (ETE, Financial)
Market Cap: 28.25 Billion, P/E: 89.90, Dividend Yield: 2.8%
Business Predictability: Not Rated, Financial Strength: Not Rated, Profitability & Growth: Not Rated
The chairman of Energy Transfer Equity, Kelcy Warren, bought 1.18 million shares at an average price of $51.30 for a total of $60.5 million. The company is part of the Energy Transfer family in Dallas, Texas, that also includes Energy Transfer Partners (ETP, Financial), Regency Energy Partners (RGP, Financial), and Sunoco Logistics Partners (SXL, Financial). ETE’s family of companies owns and operates approximately 71,000 miles of natural gas, natural gas liquids, refined products, and crude oil pipelines. The stock undervalued based on its price-to-sales ratio of 0.50. The Global Oil and Gas Midstream industry has a median P/S ratio of 2.45 and ETE’s 10-year median is 0.96.
Natural Resource Partners LP (NRP, Financial)
Market Cap: 1.27 Billion, P/E: 8.80, Dividend Yield: 14.3%
Business Predictability: 1/5, Financial Strength: Not Rated, Profitability & Growth: Not Rated
Natural Resource Partners LP had six different insiders buying since October 10. The chairman and CEO, Robertson Corbin Jr., had the largest purchase of 270,383 shares at an average price of $12.02 for a total of $3.25 million. The company is principally engaged in the business of owning and managing mineral reserve properties. It primarily owns coal, aggregate and oil and gas reserves across the United States that generate royalty income for the partnership. The stock is trading as if it is a no-growth company with a P/E ratio of 8.8. The EPS for the past twelve months is $1.31 and analysts are estimating 2015 EPS to be $1.32, justifying the low P/E ratio. The dividend yield of 14.3 percent will be difficult to maintain with a payout ratio of 138 percent. The dividend will likely come down towards its earnings yield of 9.6 percent.
As demonstrated in 2008-2009 and 2011, a large amount of insider buying can possibly signal when the markets are at or near a bottom. These three stocks have had large insider buys with Natural Resource Partners having six different insiders buying. As the turbulence continues in the markets, the Insiders section of the GufuFocus site can be a valuable tool in finding potential investments. The All-In-One Screener can also be used in combination with insider data.
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