Insiders Eye Energy

04/06/2015 9:00 am EST


James Oberweis

President, Oberweis Asset Management, Inc.

When asked about living and working in the Bahamas, legendary investor Sir John Templeton replied, “When you’re in Manhattan, it’s much more difficult to go opposite the crowd," reports Jim Oberweis, Jr., small-cap expert and editor of The Oberweis Report.

That's a logical statement for a guy who advocated “buying at the point of maximum pessimism.” The trouble is distinguishing between “maximum pessimism” and the proverbial “falling knife,” which no one wishes to catch.

Still, while we may not nail the exact bottom, attractive valuations matter and time is your friend. These days, one area where pessimism is rampant and valuations are favorable is energy stocks.

After trading consistently above $80 per barrel for nearly four straight years, NYMEX crude now goes for about $49 per barrel and traded as low as $42.03 on March 18.

While great for consumers filling up their gas tanks, the decline in oil from the 52-week high of nearly $108 has been a calamity for energy stocks.

The blue chip Energy Select Sector SPDR ETF (XLE) has dipped nearly 25% from its peak in June 2014 (compared to a gain of nearly 5% for the S&P 500 in the same period).

Smaller-cap energy stocks have fared far worse, as evidenced by the nearly 50% drop in the Powershares S&P SmallCap Energy ETF (PSCE) over the same time period.

It’s been ugly, but for long-term value players, the fun is just beginning, even when brokerage analysts are more bearish than ever. Insiders are starting to buy energy stocks in the open market.

For example, after a round of downgrades from investment banks, Loews Corp. bought an additional $24 million worth of offshore driller Diamond Offshore (DO) at an average price of $26.54.

Loews owns over half of Diamond’s stock and has had a pretty good 50-year track record of buying in times of distress.

Similarly, two senior executives at Bonanza Creek (BCEI) made an $800k bet in December at $21 and have already notched a decent profit.

Another energy name with insider buying is RPC Inc. (RES), an oilfield services company; the über-wealthy Rollins family purchased 3 million shares at a little over $12 per share.

Nobody knows for sure, but it is worth noting when big holders step up to bat in out-of-favor energy stocks.

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