2 Basic Materials Stocks With Recent Intensive Insider Buying

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 |  Includes: IAG, PWE
by: Markus Aarnio

The basic materials sector has been the worst-performing group year to date with a loss of 7.2%.

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In this article, I will feature two basic materials companies that have seen intensive insider buying during the last 30 days. Intensive insider buying can be defined by the following three criteria:

  1. The stock is purchased by three or more insiders within one month.

  2. The stock is sold by no insiders in the month of intensive purchasing.

  3. At least two purchasers increase their holdings by more than 10%.

1. IAMGOLD Corporation (NYSE:IAG) engages in the exploration, development, and operation of mining properties. Its products include gold, silver, niobium, and copper deposits.

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Insider buying by insider (last 30 days)

  • Stephen Letwin purchased 40,000 shares on June 20 and currently controls 198,356 shares or less than 0.1% of the company. Stephen Letwin was appointed President and Chief Executive Officer of IAMGOLD on November 1, 2010. He has been a member of the Board of Directors since joining the company.
  • Benjamin Little purchased 5,000 shares on June 20 and currently holds 16,903 shares or less than 0.1% of the company. Benjamin Little is Senior Vice President, Corporate Affairs.
  • Jeffery Snow purchased 29,835 shares on May 22 - June 19 and currently holds 126,002 shares or less than 0.1% of the company. Jeffery Snow joined IAMGOLD in November 2009 and is currently Senior Vice President and General Counsel in addition to being member of the Executive Leadership Team.

Insider buying by calendar month

Here is a table of IAMGOLD's insider trading activity by calendar month.

Month Insider buying / shares Insider selling / shares
June 2013 74,835 0
May 2013 8,000 0
April 2013 0 0
March 2013 146,108 0
February 2013 85,088 0
January 2013 91 3,050
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There have been 314,122 shares purchased and 3,050 shares sold by the insiders this year.

Financials

The company reported the first-quarter financial results on May 7 with the following highlights:

Revenue $305.3 million
Net income $10.9 million
Cash $863.3 million
Debt $639.2 million
Gold production 188,000 ounces
Cash costs $787 per ounce
Proven & Probable gold reserves 11.3 million ounces
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Outlook

The company's outlook for 2013 is as follows:

Gold production 875,000 - 950,000 ounces
Cash costs $850-$925 per ounce
Total all-in sustaining costs $1,200 - $1,300 per ounce
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Competition

IAMGOLD's competitors include Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM) and Randgold Resources (NASDAQ:GOLD). Here is a table comparing these companies.

Company IAG ABX NEM GOLD Industry Average [Gold]
Market Cap: 1.68B 16.62B 14.79B 6.05B 3.93B
Employees: 5,800 28,155 16,400 2,048 2.05K
Qtrly Rev Growth (yoy): -0.14 -0.06 -0.19 0.22 0.11
Revenue: 1.62B 14.34B 9.36B 1.37B 1.21B
Gross Margin: 0.41 0.46 0.54 0.45 0.48
EBITDA: 653.80M 5.96B 3.92B 700.49M 169.32M
Operating Margin: 0.30 -0.08 0.30 0.39 0.21
Net Income: 226.40M -857.00M 1.64B 412.07M N/A
EPS: 0.60 -0.86 3.29 4.44 0.12
P/E: 7.45 N/A 9.05 14.79 18.45
PEG (5 yr expected): 2.87 1.02 -0.48 1.78 1.04
P/S: 1.04 1.16 1.58 4.41 4.34
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IAMGOLD is trading below the industry average P/S and P/E ratios, which could explain some of the insider buying.

My analysis

There have been three different insiders buying the shares and there have not been any insiders selling the shares during the past 30 days. There are five analyst buy ratings, five neutral ratings and two sell ratings with an average target price of $12.54. The stock is trading at a P/E ratio of 7.45 and a forward P/E ratio of 7.01. The company has a book value of $9.90 per share and the stock has a dividend yield of 5.59%. I have a long position in the stock currently.

2. Penn West Petroleum (NYSE:PWE), an exploration and production company, engages in acquiring, exploring, developing, exploiting, and holding interests in petroleum and natural gas properties and related assets in western Canada.

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Insider buying by insider (last 30 days)

  • James Allard purchased 10,000 shares on May 27 and currently controls 19,400 shares or less than 0.1% of the company. James Allard serves as a director of the company.
  • George Brookman purchased 2,500 shares on June 7 and currently holds 14,500 shares or less than 0.1% of the company. George Brookman serves as a director of the company.
  • Richard George purchased 250,000 shares on June 6-7 and currently controls 622,600 shares or 0.1% of the company. Richard George is Chairman of the Board.
  • Allan Markin purchased 871,800 shares on May 23 - June 13 and currently holds 2,313,800 shares or 0.5% of the company. Allan Markin is Vice Chairman of the Board.
  • Murray Nunns purchased 21,962 shares on May 22 and currently holds 188,842 shares or less than 0.1% of the company. On June 4 Penn West announced that Murray Nunns, President and Chief Executive Officer, had informed the Board of Directors of his intention to retire from Penn West effective July 1, 2013 after serving the company for more than 8 years.
  • James Smith purchased 1,000 shares on June 6 and currently controls 51,000 shares or less than 0.1% of the company. James Smith serves as a director of the company.
  • Jay Thornton purchased 150,000 shares on June 6-7 and currently controls 455,000 shares or 0.1% of the company. Jay Thornton serves as a director of the company.

Insider buying by calendar month

Here is a table of Penn West's insider trading activity by calendar month.

Month Insider buying / shares Insider selling / shares
June 2013 709,400 0
May 2013 597,862 10,000
April 2013 0 0
March 2013 0 0
February 2013 0 14,229
January 2013 40,149 20,000
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The month of June has seen the most insider buying this year.

Financials

The company reported the first-quarter financial results on May 2 with the following highlights:

Revenue $704 million
Funds flow $267 million
Net loss $97 million
Production 142,804 boe/d
Net debt $3.0 billion
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Outlook

Annual 2013 average production guidance remains at 135,000 to 145,000 boe per day.

Competition

Penn West's competitors include Encana Corporation (NYSE:ECA) and Suncor Energy (NYSE:SU). Here is a table comparing these companies.

Company PWE ECA SU Industry Average (Oil & Gas Drilling & Exploration)
Market Cap: 5.33B 12.64B 44.28B 2.24B
Employees: N/A 4,193 13,932 1.38K
Qtrly Rev Growth (yoy): -0.21 -0.41 0.02 0.00
Revenue: 2.54B 4.42B 39.15B 941.90M
Gross Margin: 0.60 0.43 0.53 0.40
EBITDA: 1.54B 1.50B 11.63B 322.30M
Operating Margin: -0.02 -0.07 0.19 0.18
Net Income: 18.34M -3.24B 2.48B N/A
EPS: 0.04 -4.40 1.60 1.48
P/E: 289.21 N/A 18.32 13.64
PEG (5 yr expected): -5.80 1.51 4.82 1.85
P/S: 2.09 2.91 1.15 2.38
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Penn West is trading below the industry average P/S ratio.

My analysis

There have been seven different insiders buying the shares and there have not been any insiders selling the shares during the past 30 days. The company has an insider ownership of 5.02%. There are two analyst buy ratings, six neutral ratings and one sell rating with an average target price of $12.28. The stock is trading at a P/E ratio of 289.21 and a forward P/E ratio of 1366.25. The company has a book value of $17.65 per share and the stock has a dividend yield of 5.12%. I believe the stock could be a good pick below the book value.

Disclosure: I am long IAG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.