Insiders Are Spending Millions On These 2 Energy Stocks -- Should You?

1. Nabors Industries (NYSE: NBR)

Make no mistake, many energy insiders long for the good old days of 2007 and 2008, when triple-digit oil prices fueled a vigorous amount of capital spending on both energy exploration and drilling equipment. Nabors, which leases more than 500 drilling rigs (mostly onshore), was a clear beneficiary back then, as shares traded for around $35 five years ago. That was a reasonable price to pay for a company that earned more than $2.50 a share in both 2006 and 2007.

But a subsequent plunge in oil prices led to a drop in demand for Nabors' gear, and per-share profits are likely to slip below $1 this year. Shares now trade for less than half as much as they did five years ago. Analysts at Goldman Sachs think it's time to anticipate better days ahead, "with management confirming that (this year's second quarter) should mark the bottom for earnings."

To be sure, Goldman Sachs' analysts are generally bearish on drilling equipment providers, and have a "sell" rating on rival Patterson-UTI (Nasdaq: PTEN), for example. They are concerned that drilling budgets may dry up well before year's end, leading to lowered forecasts. Yet Nabors appears to be well insulated from a possible looming slowdown, thanks to heavy investments in new rigs that are among the industry's most efficient.

The multi-year outlook for Nabors is also looking perkier. Analysts expect earnings per share (EPS) to rebound to around $1.25 in 2014 and $1.75 by 2015. Free cash flow should exceed $2 a share by then, according to Goldman Sachs. If that happens, look for the company's annual dividend (currently 16 cents a share) to get a significant boost.

Insiders clearly see better days ahead. In just the past few weeks, four company directors bought 138,000 shares at an average price of $14.90. That's a $2 million buy-in, coming on the heels of a $1 million purchase back in May by company director James Crane. The fact that oil prices are now back in triple-digit territory likely underscores the generally improving outlook for this beaten-down energy company.

2. Basic Energy Services (NYSE: BAS)

Insiders tend to view the outlook for their company's stock differently than most outside investors. While the herd tends to focus on companies poised for solid results in the current quarter, insiders focus on how their business is trending over several years. So when investors dump a stock for short-term reasons, but the future still looks bright, insiders tend to swoop in.

That's just what happened at Basic Energy, which provides a wide range of equipment that energy drillers use, from the rigs themselves, to all of the tankers and other trucks that are used around a drilling site. After a so-so earnings report pushed shares down in late July from $14.50 to $11.50, a company director acquired $179,000 in stock.

Thanks to a series of near-term drilling challenges, Basic Energy management concedes that the second half of 2013 will generate middling results, though management made a solid case for growth in 2014 on a recent conference call.

Still, analysts at Williams Capital offered up a typical Wall Street response, rating shares a hold due to their lack of timeliness. Yet they also have a $16 price target, which is roughly 30% above current levels. "The stock has substantial upside to our price target, and given the (July 26 sell-off), a near-term recovery in the shares would not be surprising." However, fundamental improvement is still several quarters away, noted their analysts. That $16 price target equates to just four times projected EBITDA (earnings before interest, taxes, depreciation and amortization).

Goldman Sachs also has a seemingly cautious view: "It appears increasingly likely that a true recovery in service activity may not come until 2014." Yet they think that shares are so inexpensive in relation to 2014 and 2015 EBITDA projections, that they have this stock on their "Conviction List," which is reserved for stocks with solid potential upside. Their $18 price target equates to 4.3 times projected 2015 EBITDA.