2 Stocks with Heavy Insider Buying

Many investors tend to focus on how a stock will fare in coming weeks and months. Company executives have a very different task. They need to stay focused on a much bigger picture, building a business that can grow for years to come. If investors push a stock down due to near-term issues, then executives have a clear move to make: Buy company shares while they're not fully appreciated.

Here are two stocks that have been pursued by insiders in recent weeks. Later on, I'll give my take on whether or not they are compelling "buys" right now...

Rentrak (Nasdaq: RENT)
When information and media-measuring firm Nielsen Holdings (Nasdaq: NLSN) pulled off an initial public offering (IPO) in January, many institutional investors gave the $10 billion (in market value) company a fresh look. But they may be wiser to give industry upstart Rentrak their attention instead. This $300 million company is slowly stealing business away from Nielsen and some analysts think the company can be an earnings powerhouse in a few years.

If you came across Rentrak a few years ago, you'd be unimpressed. The company's focus on sales and rental data for items such as DVDs would be appear to be a dying business, as the Blockbusters of the world get replaced by newer forms of entertainment. Yet in recent quarters, Rentrak has re-invented itself as a play on a wide range of media-consumption habits. The company has been signing up TV networks, cable companies and local TV affiliates to secure real-time consumer-viewing habits. Whereas Neilsen samples roughly 40,000 households, Rentrak now captures data from more than 15 million viewers.

Supplanting Nielsen isn't necessarily the endgame. Nielsen has a deep history and is still well-suited to determine viewership on a major network such as CBS. Yet Nielsen's survey of 40,000 homes does an increasingly poor job of capturing viewing habits on the many proliferating smaller networks. The sample size is just too small. As a result, Rentrak is picking up a steady flow of new business as many of these niche networks -- along with advertisers -- need real-time data.

Right now, Rentrak's financial performance is a bit murky. The legacy business of tracking DVD sales (which still account for 64% of sales) fell 19% in the first three quarters of fiscal (March) 2010, blunting the 100% growth in the newer media viewership business, known as TV Essentials. Those offsetting revenue trends likely kept total sales growth under 10%. in the fiscal year that just ended. The top-line is likely to really get going in the fiscal year that just began, perhaps rising 15% and, if current trends hold, annual sales growth could exceed 20% by fiscal 2013. That view still assumes Rentrak secures just a small fraction of Nielsen's current market share.

More importantly, the TV Essentials business carries very high profit margins, which is why profits may double in fiscal 2012 to around $1 a share. Analysts at Gar Wood Securities figure that per-share profits may rise to $3 by fiscal 2013. If they're right, this $27 stock could move up into the $40s in a year or two. That long-term view was likely in focus for Rentrak's CEO, William Livek, when he bought nearly $300 million worth of stock in mid-March. He likely notes that shares are roughly flat compared to where they were nine months ago, even though Rentrak has secured a wide range of new media-tracking relationships since then, putting the TV Essentials business on even sounder footing.

Rexx Energy (Nasdaq: REXX)
Rising oil prices are a golden bounty for this energy driller. And though it's often considered to be a play on natural gas, Rexx Energy actually has a considerable amount of exposure to crude oil prices as well. The company has a knack for finding niche energy fields that can benefit from the latest state-of-the-art drilling technologies. As a result, output at its fields has been rising higher than analysts had initially assumed.

Throw in rising oil prices, and you have a potential profit gusher. In fact, every $10 rise in oil prices likely translates into a $0.50 a share profit boost for the company. Those gains won't be in evidence quite yet, as much of the company's 2011 output has already been contracted at pre-negotiated prices. As the company starts to discuss contracts for 2012 and beyond, pricing is likely to be on far better terms.

Is that what insiders are trying to tell us? A cluster of them bought a collective $1 million worth of stock in late February. Those insiders likely took note of the fact that shares have slumped 20% since the start of the year, even as oil prices have surged. That disconnect was bound to catch the attention of those that know the business the best -- the insiders.

Action to Take --> I've also taken note of insider buying at Dex One (Nasdaq: DEXO) and Six Flags Entertainment (NYSE: SIX). There's more economic risk in their business models, but each looks quite intriguing from a cash flow perspective. Right now, Rentrak and Rexx Energy look like the most timely and compelling plays that insiders are trying to alert us to. Both make solid portfolio candidates.