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Insiders Love Natural Gas

By Stansberry Research Interview Series
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:
 
Company
Symbol
Amount
Chesapeake Energy
CHK
$27 million
Houston Exploration
THX
$8 million
PetroHawk Energy
HAWK
$1 million
Enbridge Energy
EEQ
$800,000
Apache
APA
$694,000
Energen
EGN
$500,000
Markwest Hydrcarbon
MWP
$250,000
Forrest Oil
FST
$200,000
 
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.
 
Good trading
 
Graham




Market Notes
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.
 
Investor’s Intelligence survey of investment professionals at highest bearish reading since October 2002.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%