winds down, insider activity heats up. That's because insiders
(classified as company executives, directors and beneficial owners)
get the green light to buy or sell their company's stock on the
open market once
have been released. (That window remains open until the quarter has
ended). So it's no surprise to see a recent sharp spike in insider
Earlier this week, I noted that Bill Gates, classified as an
because of his large investment in the company, has continued to
aggressively purchase shares. [
Read the article here
Let's take a look at three other stocks with heavy recent insider
Devon Energy (
This oil and gas driller always seems to raise investor concerns.
In 2008, investors shunned its shares since Devon lacked exposure
to the sudden plethora of emerging natural gas fields found in the
U.S. Southwest and in Appalachia. In 2009, investors fretted that
Devon wasn't investing enough money to boost output in coming
years. Then, when Devon announced a plan for major asset sales
later in 2009, investors feared that management would simply use
that cash to make unproductive acquisitions.
Yet as we sit here in late 2010, Devon is looking far wiser than
investors assumed. The company's lack of exposure to those
promising natural gas fields now looks savvy, considering natural
gas prices are so low. The company's asset sales came in at prices
higher than most expected, yielding $8 billion in cash for the
company. And instead of using that cash to make new deals,
management is boosting internal investments in existing properties
-- especially those that have a higher exposure to oil than gas.
Most importantly, Devon is focusing on boosting shares, paying off
$1.7 billion in debt and buying back $1 billion in stock (with
plans to buy $2.5 billion more in 2011). UBS thinks Devon will buy
back lots more stock in 2012 and 2013 as well, as its
is now one of the strongest in the industry.
All these moves should ultimately boost per share profits. "With
the completion of the asset sale program, Devon has repositioned
its operations to have a lower risk profile and a lower cost
structure, as well as materially strengthening its balance sheet.
This should boost Devon's long-term production growth," note
analysts at UBS. And rising production growth, which management
recently outlined for 2011, could be a key catalyst for shares.
Rising production should help boost
from $6.8 billion in 2011 to $8.5 billion in 2012, according to
Goldman Sachs. Throw in a lower share count, and that growth should
be more evident on a per share basis. And with oil prices on the
rise, cash flow projections could move yet higher. ["
Why 2011 Could be the Year of the Oil Comeback
Meanwhile, shares trade for less than five times projected 2011
cash flow. That's too low a multiple, according to company CEO John
Richels, who recently increased his ownership stake by 53,000
When this small biotech recently decided to raise $15 million,
insiders and other large shareholders didn't hesitate to pull out
their checkbooks. (That qualifies as an insider buy according to
those that watch insider moves). Their bullishness is
understandable. For starters, the company looks increasingly likely
to prevail in a lawsuit against
SIGA Technologies (Nasdaq: SIGA)
regarding marketing rights to a drug that treats smallpox --
yielding a potential massive windfall. (SIGA recently received a
$2.8 billion order from Uncle Sam, and PharmAthene may be legally
due some of that money due to a 2006 agreement that is being
Secondly, PharmAthene is also vying to become a key provider of a
next generation anti-anthrax drug to the U.S. military. The U.S.
government has been helping to fund development of this drug, which
would likely sell for a third of the price of an existing drug sold
Emerging BioSciences (
A positive resolution to either of these drugs would likely be
worth at least $6 to $7 to shareholders. If PharmAthene scores on
both counts, then shares could zoom to $15 from a current $3. To be
sure, the current weak share price implies investor cynicism on
these developments. But shares certainly look to be a worth a
modest position in light of the considerable potential upside.
QLT (Nasdaq: QLTI)
Major investors in this small firm focused on eye disorders
continue to increase their positions. Nearly two million shares
have been acquired by two outside investors and three insiders in
the past six months, capped off by a recent $1 million purchase by
Axial Capital Management. Those purchases were purchased in the $5
to $6 range.
C.K. Cooper's Jeff Cohen thinks that may be a wise move. He thinks
the stock is worth $12 on a sum-of-the-parts basis, noting the
company's nearly $200 million in cash accounts for nearly
two-thirds of the company's
. Throw in royalties due to QLT, along with an estimated value of
drugs and medical devices in its pipeline, and Cohen thinks the
stock is a double. Those insiders presumably share that view.
Action to Take -->
Of these plays, Devon Energy is the "safe" play, with potential
+20% to +40% upside in the next year or two. QLT could be a
potential double and even comes with impressive downside support,
thanks to that hefty cash balance. PharmAthene looks quite risky,
but could really take off if it benefits from its small pox or
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
P.S. -- For the past few weeks we've been telling you about
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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