Monday, July 3, 2006
Corporate insiders love natural gas...
After exploding in the late summer/early fall of 2005 following Hurricanes Katrina and Rita, natural gas prices soon fell due to a mild winter and a glut in natural gas supplies. Unlike oil, natural gas is primarily a domestic commodity, with our primary importer outside the U.S. being Canada: not exactly a political strife area.
And with natural gas trading above $10 per million BTU, energy producers began shifting to other fuel sources, resulting in a surplus of natural gas. Supplies rose, demand fell, and soon natural gas was down to $5 and change.
That’s when the insiders started loading up.
Here’s a quick list of the natural gas companies with significant insider buying in the last six months:
Number one on the list, Chesapeake Energy’s primary buyer is CEO Aubrey McClendon. At face value, his purchases are incredible.
The only problem is that as of Dec. 31, 2005, he had $91 million in unexercised options. So at any time, he could cash in these options, buy shares, and have it appear as though his purchases were open market transactions like you or I would make. McClendon’s also got $14 million in restricted stock awards due over the next four years.
Further down the list, and far more appealing, is Energen, a Birmingham-based natural gas company. Energen doesn’t engage in much exploration, so it’s kept incredible margins (Gross: 70%, Operating: 28%, Net: 15%) while most other independent natural gas companies go on spending binges looking for more supplies.
And because the company’s reserves are all located away from the Gulf of Mexico, it’s in a great position to profit from the threat of any hurricanes to its competitors.
I recommended Energen to subscribers of my Inside Strategist on June 14. We’re already up 12%.
And should a major hurricane threaten natural gas refineries and producers in the Gulf, that 12% gain will seem like pocket change.
Tough times for all things related to the home: Toll Brothers, Home Depot, Pier 1, Williams Sonoma sitting at new lows.
Gold working on a new leg up… now back above $600.