It is said that people don’t lie with their wallets. So this week we are starting an exciting new regular feature on The Correct Call. We will be looking for stocks that have high insider buying that meet our strict criteria for:
- Timeliness
- Projected Sales and Earnings Growth
- Risk
- Positive Technical Analysis Traits
- Valuation
These stock suggestions are longer-term holds. Insiders may be putting their money where their mouth is, but they have rules to live by. They cannot buy a stock today because news is coming out tomorrow and flip it for a quick profit. When insiders own restricted stock, they cannot sell it for at least 6 month from its acquisition. Therefore, we will not be putting our usual suggested closing price stop suggestions on insider buying stocks.
Our first selection is Calumet Specialty Products Partners LP (NasdaqGS: CLMT). Calumet Specialty Products Partners, L.P. produces and sells specialty hydrocarbon products in North America. The company operates in two segments, Specialty Products and Fuel Products.
The Specialty Products segment processes crude oil and other feedstocks into various customized lubricating oils, solvents, and waxes. Its specialty products are used in industrial goods, such as metal working fluids, belts, hoses, sealing systems, batteries, hot melt adhesives, pressure sensitive tapes, electrical transformers, and refrigeration compressors; consumer goods, including candles, petroleum jelly, creams, tonics, lotions, coating on paper cups, chewing gum base, automotive aftermarket car-care products, lamp oils, charcoal lighter fluids, camping fuel, and aerosol products; and automotive goods consisting of motor oils, greases, transmission fluid and tires.
The Fuel Products segment processes crude oil into various fuel and fuel related products, including unleaded gasoline, diesel, and jet fuel. The company also produces asphalt and other by-products that are processed or blended for coating and roofing applications; and fuel related products, including fluid catalytic cracking feedstock, asphalt vacuum residuals, and mixed butanes.
Even if CLMT doesn’t move a penny in either direction, as long as the dividend remains the same, investors will receive a super payout of 13.6%. Try to find a 12 month CD with that rate! It is possible that the dividend could be cut. Analysts are projecting lower earnings next year, but with the rise of oil prices, earnings expectations could be on the march again. In fact, both analysts following the stock have lifted their estimates within the last 30 days.
Calumet has seen 4 directors buy 31,845 shares totaling $3.89 million since February 5, 2009. Maybe they bought the stock for its high dividend, maybe because it’s incredibly low valuation. CLMT trades at a forward P/E ratio of just 4.57. That’s a going out of business valuation and as best as we can tell, CLMT is far from going out of business. The stock trades at an amazing 19 cents per share for every dollar they do in sales. That’s giving the stock away. Last night’s closing price of $13.48 is less than CLMT’s book value of $15.31 per share. Finally, with a PEG ratio of just .57 and a Return on Equity of 29.67 rounds out our checklist with an A+ grade.
The timing could be right on too as CLMT just posted our favorite buy signal on its stock chart, a positive MACD crossover. Calumet should be able to generate enough cash flow to maintain most of its current dividend and its low valuation make it a great total return candidate.
