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Often, it seems, bluster and hot air rule Wall Street. Companies announce share buybacks that they never complete. Chief executives wax rhapsodic about the glories of their companies while quietly selling shares on the side. And then there's Tom Ward.
You probably don't know who he is, but you should. Ward, who is worth more than $2.8 billion, made much of his money through shrewd insider buying -- that is, buying shares of companies with which he was affiliated. I've been aping his moves for six years, at great benefit to my wallet. Quite simply, Ward is one of America's outstanding wealth creators.
From 1989 to 2006, Ward was the president and chief operating officer of Chesapeake Energy. (Chesapeake is up 14-fold from its 2002 low and 105-fold from its 1999 low.) Both he and Aubrey McClendon, the CEO, were ravenous insider buyers, acquiring hundreds of millions of dollars in stock on the open market.
His new venture. I mention this because it seems history is repeating itself at SandRidge Energy. Four months after retiring from Chesapeake in 2006, Ward bought a 42% interest in Riata Energy, a Texas natural-gas company. When Riata, rechristened SandRidge and relocated to Oklahoma City, went public in November 2007 at $26, Ward bought $108 million of the stock (symbol SD). That is highly unusual. And in almost all cases, it is incredibly bullish.
Being a dolt, I missed the news. Some great investors, however, didn't. Among the all-stars who snapped up SandRidge shares were Boone Pickens's BP Capital and Fidelity Contrafund, run by Will Danoff. But when Ward said in March that he would buy $100 million of SandRidge on the open market in 2008, a jolt of electricity lit my sometimes dim bulb, and I immediately bought the stock. I bet on the jockey before I even knew what horse he was riding. The stock, recently at $61, climbed 56% between March and mid July. (True to his word, Ward invested the entire $100 million in May, at prices as high as $58.)
I told a hedge-fund buddy the story and he asked, "Why did he announce that he was going to buy the stock later? Did he want to pay a higher price? That could be a red flag."
Indeed, it could be. But Ward was such an inveterate insider buyer that I had no fear he was trying to manipulate the stock. SandRidge's chief financial officer, Dirk Van Doren, says Ward had to announce his intentions to buy the shares to fulfill the requirements of the Hart-Scott-Rodino antitrust act. "And we didn't want investors wrongly thinking that he was trying to buy the company," says Van Doren.
So what is this company, and why is Ward so bullish? Well, first things first. Ward is a superbull on natural gas and thinks we should be using it to power our cars. In California, drivers of the natural-gas-powered Honda Civic pay the equivalent of $1.63 per gallon.
SandRidge, which has a stock-market value of $9 billion, owns 550,000 acres of the West Texas Overthrust. "On just 60,000 of those acres, we have in excess of four Tcf's [trillion cubic feet] of natural gas, and the number is rising," Ward says. ÒThere are multiple Tcf's of upside.Ó At today's prices, a Tcf is worth at least $1.5 billion.
Sum of the parts. The land also contains large deposits of methane gas and carbon dioxide, both of which are valuable. Besides being linked to global warming, carbon dioxide is used to increase production from a well. SandRidge also has an in-house drilling company. It owns 44 rigs and is planning to build 10 to 15 more. In addition, the company owns valuable East Texas properties, which it may sell to fund operations. East Texas is emerging as one of the most exciting new sources for gas.
My strategy is simple: If Tom Ward is willing to pay $58, I am happy to hold my SandRidge shares at $61.
Columnist Andrew Feinberg writes about the choices and challenges facing individual investors.
POSTED BY: Rich (August 12, 2008 12:09 PM)
Any other stocks you're crazy about??? Please let me know so I can short them next time instead of following your advice...
POSTED BY: William Thornley (August 16, 2008 06:13 PM)
Is Mr. Feinberg still happy to hold SD at $61? Looks like the jockey you followed & bet on, Ward, is down over 50 million this month. When do you see a profit?
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