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Come Join the Million Dollar Club
By Michael Brush
Exclusively for InvestorIdeas.com
February 14, 2008
In late January I suggested one great way to get a clear signal in these confusing times is to go with the ”super insiders.”
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Another way to latch on to conviction in this market is to follow insiders who are making clearly decisive bets of over $1 million.
Let’s call it the Million Dollar Club.
Membership is no guarantee that a stock will go up, of course. And in these days of chief executives at large companies making over $10 million a year on average, a cynic might argue that $1 million isn’t even really that much money.
But the very same kind of high-priced executives don’t mind the ridicule that can come from accepting truly trivial perks – like a three-year gift card at discount retailer Wal-Mart (WMT) which was recently part of a golden goodbye package. So I’ll continue to think that $1 million means a lot to these well-paid guys and gals.
Here are five of my favorites in the Million Dollar Club.
McMoRan Exploration (MMR)
Just a few weeks ago on January 24, I noted that super insider Robert Day was loading up on McMoRan Exploration, which does oil and gas exploration and production in the Gulf of Mexico. Indeed the stock looked cheap, trading at a price to sales ratio of around one, compared to a sector average of 2.29.
Since then, the stock is up 25%.
But Day hasn’t stopped there. He picked up another $8.1 million worth of stock on February 11 for around $16 or so. That clearly puts Day and McMoRan Exploration in the Million Dollar Club. It’s also bullish to see an insider keep buying on strength.
Emerson Electric (EMR)
Emerson Electric posted 12% revenue gains earlier this month for the most recent quarter. Growth should continue to be healthy no matter what happens in the U.S., thanks to international exposure. And strong demand from the energy sector explains the company’s solid growth in areas like process automation systems and industrial automation. In February 2007, the company won a process automation contract with BP (BP) for U.S. refineries.
These trends might help explain why director August Busch put $2.1 million into the stock on February 8 at around $50 a share. The stock has advanced to $53 since then, but it’s still off from recent highs of $58 a share. Morningstar (MORN) analyst Tom D’Amore has a five star rating on the company, Morningstar’s highest rating.
Calpine (CPN)
Calpine was one of those high flyers during the heady days in the energy sector before Enron hid the skids. Then the company went into bankruptcy in 2005 with $18 billion in debt. It cut about 1,100 jobs, reduced its debt by $7 billion, and closed 19 offices.
Now it’s lean and green, says chief Robert May, since Calpine draws at least some of its power from geothermal facilities.
The California-based company emerged from Chapter 11 protection and began trading under a new ticker at the end of January. About a week later, director Ryan Stuart picked up $26 million worth of Calpine stock for around $16.50 according to insider-moniter.com – which is about the current price.
We’ve had good success with initial public offerings (IPO) where insiders are buying a lot of stock, and this coming out after bankruptcy is like an IPO. So I’ll take the buying as a solid signal. Stuart’s $26 million in purchases definitely gets Calpine a seat in the Million Dollar Club.
Seattle Genetics (SGEN)
If you have never heard of the Baker brothers, two winners in the biotech space, you can get some background on their record ”here.”
Julian and Felix Baker have been big supporters of Seattle Genetics for years, and they purchased $25 million more of the stock on January 23 at $8.99, taking their position up to about 16.5% of shares outstanding. Over the past few days they have been at it again, buying over $1.6 million worth of the stock, according to insider-moniter.com.
Seattle Genetics makes antibodies that attach to cancer tumors and instruct them to die. It may not have a product on the market for a few years, but it will present research advances in the meantime that could drive the stock. Needham & Co. analyst Mark Monane has a $15-a-share price target on the stock, which recently traded for about $9 a share.
Wachovia (WB)
Frightened investors have knocked shares of Wachovia down 35% to $35 since last spring because of concerns about exposure to the subprime fallout.
Insiders say phooey to that.
On February 7, two directors put $1.4 million into the stock for around $34-$35. And since the stock started showing signs of weakness last summer insiders – mainly directors but also chief G. Kennedy Thompson -- have plowed $34.6 million into the stock. The bank also has a buyback plan in place, another suggestion that management sees value in the pullback.
Now I don’t know when problems related to implosions of debt instruments built on subprime loans will subside, or how much worse it will get. I don’t think anyone really does. That’s part of the problem here. But the $36 million that Wachovia insiders have put into the stock in the past six months tells me they think their bank is less exposed than the market believes.
The bottom line: Decisive bets are compelling in these uncertain times – and the big bets at these five members of the Million Dollar Club are sending a clear buy signal.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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