Let’s Go to Bat With the Hank Aarons of Insiders

By Michael Brush
Exclusively for InvestorIdeas.com
March 20, 2008

It’s such a treacherous market out there, when following insiders I’d stick with those who have an excellent record over several years for buying and selling at the right time.

That’s what we see with a group of insiders at two tiny companies called FX Energy (FXEN) and Gerber Scientific (GRB).

These two companies are so small you won’t hear anyone screaming about them on CNBC. Your broker, if you have one, probably doesn’t know about them. And they have scant Wall Street coverage, so there aren’t many analysts out there selling their stories.

FX Energy, an oil and gas developer in Poland and the U.S., has a market cap of just $179 million. Gerber Scientific, which produces specialized equipment used to make signs, apparel and materials, and also process lenses for prescription eyewear, has a market cap of $196 million.

These companies may be small. But they are chock full of insiders with superb timing skills – and that’s what counts. Recently, in this sharp market pullback, these astute insiders have been buying again. Their records are so strong, it makes sense to follow.

Let’s take a closer look.

FX Energy

David and Andrew Pierce have been at FX Energy for at least a decade. David is now CEO, and Andrew is chief operating officer. Over the years, they’ve darted in and out of their stock like Mohammed Ali. They made the right moves just about every time.

• Back in 1997, following sales at around $12 in January, their stock decline 36% in the next six months. This was the first of several deft moves on record for the past decade at Thomson Financial.
• The next one came in March 1999. David bought back at around $4.30. The stock was up 61% in six months. Andrew bought about a dollar higher and gained 45%.
• Then in the summer and fall of 2005, both did some serious selling again in the $10 to $12 range. And the stock fell 40% to 56% in the following six months after that.

Now that the stock has tanked to the $4 range from $10 last summer, they are buying again.

David bought $83,000 worth of stock for around $4.16 in the middle of this month. Andrew was right there with him, purchasing around $156,000 worth of stock for about $4.45. (He also saw value and bought at around $4.60 in the summer of 2006 when he bought. The stock rose 30% in the six months after that.)

These may not seem like big buys, but keep in mind this is a small company. So the small purchases carry more weight. And they aren’t too different in size from their other activity over the past ten years that netted such a great record.

Owning shares of FX Energy is a bet that rich energy finds in the North Sea and Northern European portions of a geological formation known as the Permian Basin will be replicated in Poland’s portion of the same formation.

This isn’t a certainty. But FX Energy claims independent engineers believe there are substantial amounts of gas in its 3.2 million acres in Poland. FX Energy says the area has been under-explored for decades because foreign energy companies were excluded while the country was behind the “Iron Curtain.”

Gerber Scientific

Two insiders at Gerber Scientific are no less astute than the insiders at FX Energy. Board member Edward Jepsen scored 68% and 96% gains on purchases in Gerber Scientific which he made back in January of 2003. He also racked up 30% gains on 1999 purchases in another stock.

Now, he is buying again. In the middle of March, he purchased about $411,000 worth of Gerber Scientific stock for around $8.

The other astute buyer at this company is William Grickis, who is general counsel. He was up 34% six months after a purchase in Sept. 2005. And Gerber Scientific stock fell 27% after a significant sale of his in October 2006.

He’s buying again, too. He made a small purchase of around $12,000 earlier this month – also at about $8 a share.

All told, these two have bought over $900,000 in the past four months – a significant amount at such a small company.

WebMD Health

If you’re looking for something a bit larger in market cap, I’d consider WebMD Health (WBMD), the medical and health information website whose stock has gotten hammered down to $26 from above $60 last fall.

Board chairman Martin Wygod has moved into his company’s stock with precision on many occasions in the past few years. He has six month gains of anywhere from 35% to 80% on a series of purchases in 2005 and 2006, according to Thomson Financial.

He recently put $1.6 million into the stock in the $23-$24 range.

Director Stanley Trotman also has an enviable record, with 35% average gains in six months on two purchases in 2005 and 2006. He recently bought $63,000 worth in the $25-$26 range.

The bottom line: These purchases by the Hank Aarons of insiders don’t guarantee anything in terms of returns, of course. But all of these buyers have a proven knack for recognizing when their stocks have bottomed – and they’re telling you that’s happening right now.

Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.

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