The Trade Idea: After last week’s development in OIL’s Quantitative Gravity, I would avo...
Insiders Load Up on Small Energy Play
12/05/2007 12:00 am EST
Eric Roseman, editor of Commodity Trend Alert, says four company insiders have paid big money to buy stakes in a depressed Gulf of Mexico oil and gas producer.
There’s not much to like about a company that’s struggling to make money. I’m talking about McMoRan Exploration Company (NYSE: MMR), [which we] first plugged in November 2004 and subsequently sold for a modest profit in October 2005.
Recently I was stunned to see a bulging cash-based purchase by four insiders [in November]. What really piqued my interest was the amount purchased in relation to this company’s small market value [of around $400 million]. When I see this sort of buying, I’m immediately interested.
There are hundreds of natural resource stocks out there, but none offer this sort of compelling insider buying—none. That’s especially the case right now in the oil and gas sector, where soaring costs have seriously hurt earnings for most companies, including MMR.
McMoRan Exploration Co. engages in the exploration, development and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast region. As of December 31, 2006, the company owned or controlled interests in approximately 400 oil and gas leases in the Gulf of Mexico, and onshore in Louisiana and Texas covering approximately 370,000 gross acres.
MMR trades at a multiyear low, is down a hard 23% over the last 12 months and posted a huge third-quarter loss. Usually, this sort of financial bleeding would leave me running for the door; but based on my stock-screen analysis and contrarian sentiment indicator, this depressed oil and gas exploration concern is worth your time, effort, and of course, investment dollars.
The average insider purchase in the United States is just $50,000. At MMR, four insiders, including the company’s co-CEO bought a total $8,886,000 worth of company stock earlier this month at an average price of $12.40 per share, or above Tuesday’s close. The co-CEO alone purchased $1.3 million worth of MMR on November 2nd—a few days following the company’s poor earnings release. (That executive, James Moffett, may have purchased more shares later in the month—Editor.)
On November 14th, MMR successfully financed a $300-million senior note issue primarily for the financing of its recent takeover of Newfield Exploration, which will significantly boost its Gulf of Mexico oil and gas revenues. I think this is the reason why executives and directors at this small energy company have gone mad-dash crazy with an $8.9-million insider buying binge this month.
You don’t buy several million dollars’ worth of stock if you think the company is heading down the tubes. MMR insiders all clustered at the same price in a span of just a few days; that tells me earnings are going to turn around in a big way over the next few quarters. It also means we’re buying.
Buy McMoRan Exploration Company at market up to $12.75 and let’s play with the big boys in the Gulf of Mexico!
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