Famed money manager Peter Lynch gave us the inside scoop on how to look at insider transactions. Executives can sell their stock for any reason, he said, but they buy for only one: They think the price is going to go up!
Today, I've highlighted a handful of insiders who have made big purchases of their own company's stock in the past week. These aren't executives getting big chunks of shares from option grants. Rather, they're insiders putting their own money on the line and buying shares at market prices. I then paired that information with insights from the members of Motley Fool CAPS to see whether they think the stock has the same prospects the insiders do.
Market Value of Transactions
CAPS Rating(out of 5)
Chesapeake Energy (NYS: CHK)
Louis Simpson, director
Kellogg (NYS: K)
James Jenness, chairman
Whirlpool (NYS: WHR)
Jeff Fettig, chairman and CEO
Although following the lead of insiders can be profitable, we still recommend you do further due diligence to determine whether these stocks ought to be sold from your own portfolio -- or would make a good addition! So this isn't a list of stocks to sell or buy, but just the inside track on companies you might want to check out further.
Fill 'er up!
Going on a spending spree in the Utica play of Pennsylvania, natural gas giant Chesapeake Energy is also making sure those assets pay off for shareholders by leasing some back out for development. Chesapeake says it's buying about 1,000 acres a day and recently announced several deals worth more than $3 billion that will create joint ventures to tap the natural gas held there. CEO Aubrey McClendon says ultimately the Utica play ought to be worth as much as $20 billion for shareholders.
With natural gas in abundance, Chesapeake unsurprisingly is calling for a major push for nat-gas vehicles and wants an infrastructure in place to support it. It is assisting Clean Energy Fuels (NAS: CLNE) in developing a network of 150 nat-gas fueling stations across the country.
The markets aren't exactly excited about the tack Chesapeake is taking, though, dropping the stock some 12% over the past week after it announced the joint ventures. CAPS member OldPyro isn't one of the naysayers, though, instead looking for Chesapeake to parlay its position into additional growth: "[Chesapeake] has large reserves and is the No. 2 producer of natural gas in the US. As natural gas replaces oil and coal in some situations to reduce global warming, the price will climb."
Let us know in the comments section below or on the Chesapeake Energy CAPS page whether you think insiders will continue to gorge themselves on the stock. Also add it to your watchlist to be notified of the latest developments.
Leggo my Eggo!
You'd think cereal maker Kellogg would be able to get some snap-crackle-pop relief from falling prices of wheat, which is set to have its biggest drop since 2008. But health and safety concerns plagued its latest earnings results, causing it to have to spend more money to upgrade equipment and processes. Where General Mills (NYS: GIS) or Ralcorp's (NYS: RAH) soon-to-be-spun-off Post Cereals division will be able to capitalize on lower commodity costs, Kellogg won't, and investors have sent its shares 10% lower this month.
Kellogg's chairman obviously thinks the market is inappropriately discounting the breakfast king. It still has a powerful brand with wide distribution, and though the listeria outbreak will be a hurdle to overcome, there's little doubt Kellogg won't be back.
Yet even after the stock's drop, Kellogg is still comparably valued to General Mills, Ralcorp, ConAgra (NYS: CAG) , and J.M. Smucker. That suggests that it might not have been beaten down enough to make it a real bargain yet.
CAPS member shayangol says that in addition to being a top brand, its technicals look attractive, too. I've marked Kellogg on CAPS to outperform the broad market averages because I think over long periods of time this company will be on the breakfast table of champions. Add Kellogg to your watchlist, and let us know in the comments section below whether you think investors will eat it up again.
With the housing industry dead and no more taxpayer handouts to buy new appliances -- the whole cash-for-clunkers, -caulkers, -appliances, -mortgages, etc., having proved to be a complete waste of resources -- it's not surprising that white-goods maker Whirlpool had its earnings stuck in the rinse cycle. Even General Electric (NYS: GE) saw its appliances division bring down its home and business solutions segment despite higher sales in lighting.
Yet as my Foolish colleague Sean Williams points out, Whirlpool is still generating significant profits despite the broad slump. If it's able to do this during the worst extended housing skid in recent memory, it ought to be a powerhouse when the industry recovers.
Free cash flow hasn't grown for 15 years. EPS is meaningless. Secular erosion in industry means current FCF of ~$4.50 going to ~$2.00. Stock is worth maybe $30, but covenant and liquidity issues could force it even lower.
On the inside track
Following the insiders can be a path to profits, but it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Sign up today for the completely free service, and tell us whether it's worth trading on this inside information.
At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Chesapeake Energy and Kellogg. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.