Yahoo Finance 3 Oil Companies Where Insiders Are Buying Big-time
As I detailed here, oil industry insiders bought nearly $50 million worth of stock in the eight trading days through Aug. 10. Here's a closer look at some of the most interesting insider activity at a few of the larger names in the space. The buying signals that the following stocks may be worth owning for the medium term.
Diamond Offshore Drilling (DO)
The insider buying here seems unusual because the near-term outlook for offshore deep- water drilling is so bleak. With oil prices so low, energy companies hate expensive deep-water projects. So now there are too many rigs on the market, which puts downward pressure on pricing.
Diamond CEO Marc Edwards admitted as much in the company's Aug. 3 earnings call. "We believe that any green shoots of a market recovery remain well over the horizon with industry fundamentals that today continue to look very challenging," he said.
But Diamond has some of the best rigs around. This explains why during the past year, it's won an outsized share of business in its space. And why all five of its latest rigs will be rolled out with long-term contracts already in place, through 2019-2020.
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Besides, given that oil is getting harder to find and produce, deep-water production is here to stay, points out Diamond CFO Gary Krenek. It will eventually come back into style as oil prices move back up. "We are in a cyclical business, and in the due course of time, our clients’ priorities will shift back towards deep-water production," said Krenek, in the earnings call. All of this helps explain the recent $4.8 million mega purchase of Diamond stock at about $21 a share by Loews (L), an insurance company which says it takes a long-term view in investing. Loews already owned 53 percent of Diamond Offshore stock.
Exxon Mobil (XOM)
The insider buying here is interesting for two reasons.
First, it is so rare. In the past five years, there's been little but selling here, year in year out. There's been no buying since March 2013 at $89, August 2011 at $70 and August 2010 at $59.86. A look at the chart shows that Exxon Mobil insiders are astute buyers when they finally do step into the market.
The last two buys happened during extreme selloffs like the current one. The purchases were followed by nice rebounds. The 2013 buying happened during an extended sideways move, but it was nicely profitable within a year or so.
The current Exxon Mobil insider buying was a purchase of about $400,000 worth of stock at $78.07 by a high profile line officer: Jeffrey Woodbury, the vice president for investor relations. Purchases by this level of management can be significant in insider buying analysis. These execs presumably have less spending power than CEOs (since they earn less), but they are very close to business operations nevertheless.
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With a nice mix of upstream production and downstream refining and distribution, and a strong balance sheet, Exxon Mobil is a relatively "safe" energy play that can perform well throughout the ups and downs of the oil price cycle. It pays a 3.7 percent dividend yield.
Occidental Petroleum (OXY)
One of the biggest purchases in the energy space last week happened when a director at this company snapped up $695,000 worth of stock at about $69.50. The stock is already up a bit, but Occidental is still worth considering because it owns the best house in one of the best neighborhoods. Occidental has some of the richest assets in the Permian Basin, considered one of the most productive energy plays in North America.
This helps explain why Occidental is increasing production rates and adding to reserves when other energy companies are having trouble doing so, points out Morningstar analyst Allen Good. Occidental's Permian Basin production volume increased 51 percent in the second quarter. Meanwhile, the company is cutting costs, in part by deploying engineers into the field to replace contractors.
That might not be what they signed up for. But the moves help their company avoid layoffs. And Occidental is using the savings to produce more oil, to keep cash flow positive and defend its 4.4 percent dividend yield.
At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush has suggested DO, XOM and OXY in his stock newsletter Brush Up on Stocks. Brush is a Manhattan-based financial writer and money manager who has covered business for the New York Times and The Economist group, and he attended Columbia Business School in the Knight-Bagehot program.
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