When I look at a beaten-up sector, one of the key tells that things may be near a turnaround is insider buying. I may not be an expert on a given industry, but the people running the companies in the space should have some deeper level of knowledge than I possess.
We are finally starting to see some insider buying in the energy sector after something of a lull in 2015. I have proven pretty definitively that I have no sense of timing when it comes to the oil market, as I have been long and wrong for a little over a year now. One of the reasons I had held off adding to my positions was the fact that insiders simply were not very active on the buy side.
I do not own any MLPs directly, but I do have a position in Tortoise Pipeline & Energy Fund (TTP), a closed-end fund that owns a lot of them. The insider buying list has a bunch of MLPs on it, as the officers and directors of these firms have been buying as prices collapse, so we may be nearing a bottom in the sector.
Enterprise Products Partners (EPD) has long been considered one of the very best energy-related MLPs, but it has not escaped the carnage as the shares are down more than 35% over the past year. Enterprise owns a lot of pipelines, with 19,400 miles for natural gas liquids, 19,300 miles for natural gas and 5,400 miles for transporting crude oil. The company also has 2,350 miles of offshore natural gas and crude oil pipelines and six offshore hub platforms in the northern Gulf of Mexico offshore. Finally, Enterprise stores and markets natural gas. Most of what it owns can be considered almost irreplaceable assets as approvals for new pipelines are hard to come by in today's regulatory environment.
Four insiders have been buying the stock this month. Chief Operating Officer A.J. Teague had two purchases for 30,515 shares. Director William Montgomery added 10,000 shares to his portfolio, Chief Administrative Officer Randall Fowler bought 500 shares while Director James Hackett picked up an additional 125,000 shares. The shares are currently yielding 6.7%, so you get paid fairly well if you join the insiders in betting the stock price will recover in 2016.
The biggest MLP buy was in shares of Energy Transfer Equity (ETE). Co-founder Kelcy Warren spent over $41 million to purchase 2.485 million shares. Energy Transfer, as general partner of Energy Transfer Partners (ETP), Sunoco LP (SUN) and Sunoco Logistics LP (SXL), owns oil and natural gas pipelines and storage facilities. It sells natural gas to utilities, independent power plants, local distribution companies and industrial end-users. Energy Transfer is in the process of trying to acquire Williams Companies (WMB). The shares have been hit hard in the current selloff and are down 52% in 2105. If successful, it will become the world's largest energy infrastructure company. (Energy Transfer Partners is part of TheStreet's Action Alerts PLUS portfolio.)
Warren is not the only one buying the stock. President John McReynolds bought 84,667 shares of Energy Transfer Equity this month, CFO Jamie Welch bought 50,000 shares and Director Rick Turner bought 5,000 shares. At this price, the shares are yielding 8.7%, so you will have a decent cash flow if you decide to invest alongside the billionaire pipeline operator and his executives.
Outside the MLP space, C. John Wilder, executive chairman of Bluescape Resources, has been a heavy buyer of shares of EXCO Resources (XCO). Wilder was appointed to the board of the company in September and at that time pledged to own at least $23 million of stock by next September. He has been making good on his word and has purchased more than 2.6 million shares of the distressed shale gas company.
When he joined the board, Wilder said, "We continue to believe EXCO has significant potential by uniting EXCO's strong operating capabilities with Bluescape Resources Co. LLC's proven commercial and turnaround track record. By executing a long-term and disciplined performance improvement plan, EXCO can be repositioned to deliver significant value to its shareholders."
If he is successful in helping other board members T. Boone Pickens and Wilbur Ross in positioning this company to survive until it can thrive when oil and gas prices rise, this stock could be a home run. It is a risky bet, but you could conceivably make a lot of money from a very small investment in shares of EXCO.
Insiders are stirring in energy stocks and that could be good news for those of us who have been a little early into the sector.
