Insider purchases on radar
What do you do when you are a large health care organization facing increasing regulation?
If you are UnitedHealth Group Inc. (UNH), you buy the biggest health care provider in Brazil.
United Health is paying $4.9 billion for a controlling interest in Amil Participacoes SA and named its CEO, Dr. Edson Bueno, to a board seat. Dr. Bueno is the 578th richest person in the world, according to Forbes magazine.
On Nov. 2, Dr. Bueno purchased $470 million of United Health shares. Through the end of November, he was down 3 percent on his new investment, but I expect the purchase will prove rewarding.
UnitedHealth has about 40 million members in the United States. It should gain more as the nation moves toward the goal of having all citizens covered by health insurance.
Last year, United Health earned 19 percent on stockholders' equity, a sterling number. It stayed profitable throughout the terrible recession of 2007-2009. And it has achieved an earnings growth rate of almost 10 percent a year during the past five years.
The stock is reasonably priced at 10 times earnings and 0.5 times revenue.
For my clients, I own shares of a rival, Humana Inc. (HUM), which is less profitable but has a cheaper stock and a faster earnings growth rate. Nevertheless, I think investors could do well by putting their money where Bueno's is.
The UnitedHealth purchase was the largest stock purchase by an insider in an Amercian company during the past three months. Here are some other bulletins from the insider front.
I'm seeing a lot of small and medium-sized purchases by insiders at Apache Corp. (APA), a leading oil and gas exploration and production company.
One buy that caught my eye was the purchase, on Nov. 5, of 4,750 shares by F. Brady Parish. Parish used to be a managing director at Goldman Sachs, where he led the oil and gas investment banking team.
Recently he was named head of investor relations for Apache. I think Parish has a good story to tell investors.
Apache has grown revenue to $16.8 billion from $2.6 billion in the past decade. Earnings have marched up to $2.5 billion from $554 million.
The stock sells for less than eight times earnings, and barely over book value.
Parish paid a little over $384,000 for his shares. Through the end of November, he had an $18,000 loss. But I think he will end up being a pleased stockholder.
I don't have any Apache holdings now. Several years ago, it was a mainstay in my clients' portfolios. At current prices, I'm tempted to invest again.
I have noticed a few sales by insiders at Capital One Financial Corp. (COF). Based in McLean, Va., the banking company is one of the nation's largest issuers of credit cards.
In August, John G. Finneran Jr., secretary and general counsel, sold more than 90,000 shares, retaining about 184,000. The proceeds from that sale were close to $5 million.
In October, two insiders sold some shares. They were Robert M. Alexander, chief information officer, and Jory A. Berson, chief human resources officer.
In late October and early November, Gary L. Perlin, chief financial officer, sold about 39,000 shares, for proceeds of about $2.3 million. He still has more than 111,000 shares.
I pay special attention to sales by chief financial officers and chief executive officers. It should be noted that CEO Richard D. Fairbank hasn't sold any shares this year, and he has more than 2.5 million shares.
On Nov. 8, Capital One announced that 18 percent of its loans are in New York, New Jersey and Connecticut, the states hardest hit by Superstorm Sandy. The company said that loan losses might be above average on those loans.
That fact, plus the recent insider activity, would make me steer clear of Capital One shares for a while.
Many investors who bought Facebook Inc. (FB) shares in the initial public offering on May 17 at $38 would love to break even. They may find it discouraging to note that several insiders sold shares in November at prices in the range of $20 to $26, well below the initial offering price. One was director Marc Andreesen, who sold about $50 million of stock.
Andrieson, like the other sellers, retained a lot more shares than he sold. Still, it would have been a more bullish signal if they hadn't sold.
John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. He can be reached at email@example.com