How Are Insiders Trading These Energy Giants?

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Insider trading is when a company’s executives, board members, or large stockholders buy or sell shares of that company. In most cases, insider buying is a stronger bullish indicator than selling is a bearish one, though the latter still needs to be kept in mind. While most analyses of this activity follows individual companies, it’s also important to take a look industries or entire sectors.

Recently, we looked at the oft-discussed social media stocks and concluded that the overwhelming majority of insider sentiment in this industry was negative. Consequently, we discussed how this basket of companies had returned zilch to their investors in 2012, showing why insider trading is an integral part of any financial analysis. Today, we’re going to take a look at a few energy behemoths like Chevron (NYSE: CVX), Exxon Mobil (NYSE: XOM), and more. 

<table> <tbody> <tr> <td> <p>Stock</p> </td> <td> <p># Insiders (B/S)</p> </td> <td> <p>YTD Ret %</p> </td> </tr> <tr> <td> <p>Halliburton Company (HAL)</p> </td> <td> <p>1/2</p> </td> <td> <p>-2.93</p> </td> </tr> <tr> <td> <p>Chevron Corporation (CVX)</p> </td> <td> <p>0/4</p> </td> <td> <p>5.69</p> </td> </tr> <tr> <td> <p>Exxon Mobil Corporation (XOM)</p> </td> <td> <p>0/5</p> </td> <td> <p>7.40</p> </td> </tr> <tr> <td> <p>Phillips 66 (PSX)</p> </td> <td> <p>1/0</p> </td> <td> <p>37.82</p> </td> </tr> <tr> <td> <p>BP plc (BP)</p> </td> <td> <p>0/0</p> </td> <td> <p>-2.22</p> </td> </tr> <tr> <td> <p>ConocoPhillips (COP)</p> </td> <td> <p>0/2</p> </td> <td> <p>-0.42</p> </td> </tr> <tr> <td> <p>Marathon Petroleum Corp (MPC)</p> </td> <td> <p>1/0</p> </td> <td> <p>66.12</p> </td> </tr> </tbody> </table>

As a group, these seven stocks – some of the energy sector’s most popular names – have returned 15.9% YTD, led by Phillips 66 (NYSE: PSX) and Marathon Petroleum (NYSE: MPC). Following its spinoff from ConocoPhillips (NYSE: COP), Phillips 66 has returned close to 40%, as the markets have taken kindly to the downstream portion of the multi-billion oil and gas refiner. From an earnings standpoint, the company has been an exciting investment to hold, as it reported close to $1.2 billion in Q2 earnings, up 18% from the same quarter last year. According to his 13F filings, Warren Buffett bought over 27 million shares in the second quarter, and Phillips 66 currently is the Oracle of Omaha’s thirteenth favorite stock.

ConocoPhillips, meanwhile, is Buffett’s ninth most bullish investment, as it accounts for a little over $1.6 billion of his 13F portfolio. Since its split, the upstream portion of the company has traded in tight range of $56-$57, as its second quarter net income fell year-over-year. Conoco has also reportedly ended its operations in the Caspian Sea, which was expected to have between 9 and 16 billion barrels of oil, whilst selling its stake in LUKoil. While it appears that investors don’t like the company’s new streamlined look, bargain-hunters – Buffett included – may find it attractive.

Conoco currently trades at trailing and forward P/E ratios below industry averages. The company is expecting earnings of $1.16 a share for the current quarter, and reports its results later this month. An earnings beat should push Conoco back to a fairer valuation.

Aside from Phillips 66, the only other stocks on this list to have insider buys are Halliburton and Marathon Petroleum. The latter has returned over 60% in 2012 thus far, and it has beaten the Street’s earnings expectations in each of the past two quarters. In its most recent earnings announcement, Marathon reported an EPS of $2.53, up $0.24 from Q2 of 2011, and $0.07 above average estimates.

Shares jumped a few percentage points earlier this week when the company announced it was buying BP’s Texas City refinery for close to $600 million. The move is expected to boost Marathon’s bottom line by $700 million to $1.2 billion. It appears that Marathon got a good price from BP because other buyers were scared away due to the plant’s troubled history, where a 2005 octane booster explosion killed 15 workers.

Halliburton has been rather flat since the start of the year, and saw a moderate purchase of 30,000 shares by Director Murry Gerber in February. The company has exceeded earnings expectations in every quarter this year, most recently beating estimates by 6.3% in July. In the long-run, Halliburton expects EPS growth of 18.1% a year over the next half-decade, much higher than its 5-year historical average of 9.5%. Despite a near-doubling of its earnings growth rate, investors are valuing it as a $30 stock, which puts its PEG ratio at an astoundingly low 0.55. You should definitely “monkey” Gerber and get into Halliburton while its still a good value-play. There’s no trap here, and as a bonus, its lawsuit over truck driver ambushes in Iraq was actually given the kibosh by the Supreme court earlier this week.

Chevron hasn’t seen any insider buys, but is up slightly YTD. The oil and gas giant has worried investors this week with a bearish guidance readjustment in which execs stated EPS will be “substantially lower” than the previous quarter, as upstream profits were hurt by Hurricane Isaac, as well as maintenance costs in Kazakhstan and the UK. Downstream revenues were also hurt by a debilitating fire at its Richmond, CA crude refinery, and hurricane related issues at its Pascaguola, MS facility. The stock does trade at attractive earnings multiples, but expects declining EPS over the next half-decade, predicting just a 2.2% annual expansion through 2017. Due to the fact that the stock sports a rather unattractive PEG ratio of 3.86, we can see that investors may have a good reason to be bearish at Chevron’s current price near $112.

For a longer look at the insider trading activity surround these and other energy stocks, visit Insider Monkey’s comprehensive database.


This article is written by Jake Mann and edited by Meena Krishnamsetty. Meena has long positions in COP and PSX. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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