Lit Fuse: Insider Buying in Energy

NEW YORK (TheStreet) -- Unless you're buying a company's shares for income and a worthwhile dividend you're most likely buying because you believe the stock has significant upside growth potential.

There are many metrics and gauges that help us determine when a stock is a good value and has been unjustly overlooked by the investment community.

Some people listen to financial analysts, some receive information from their brokerage firm, and many rely on their own experience, research and instincts.

Those are all important ways that help us to find value in whatever asset class we want to invest in. Yet we also need to ask some important questions, especially when it comes to the shares of companies we're considering.

Who is most likely to know the details of the financial condition of the company? Who spends each day guiding the decisions, knowing the business prospects and managing the expectations of the shareholders?

Which individuals know the competition? Who is more likely to know the prospects for the industry sector that this company, the one you're considering investing in, is a part of?

The answer is the insiders who work for that company, especially the operating officers who have to make the big decisions on a day-to-day basis.

When they're willing to invest a meaningful amount of their net worth in their company's stock they're showing shareholders that their financial interests are aligned with them.

This doesn't always mean that a company's share price is ready to turn around and head higher. It also doesn't mean that the officers and directors know where the stock's price bottom resides.

It usually does mean the insiders believe the stock is worth more than the market is currently valuing it. With their inside awareness of the company's current operating environment and earnings they can often see far enough down the road to know that the stock will eventually be more fairly priced.

Ready to Energize

One sector where a number of quality companies are not currently being treated with much enthusiasm or respect is the energy sector. Many of these companies are trading at such low valuations that if you didn't know the ins and outs of how they make money you wouldn't realize that the stock should be priced more generously.