Cramer's Gassed Up About EPD

In the last segment, Cramer shared his first “insider buying” play, L-3 Communications. The strategy is based on the idea that a company executive who buys stock in his own business even when the price is at or near its 52-week high must think that stock is undervalued. He probably figures there’s room for an upside move. For this segment, Cramer has what he thinks is an even better company to consider: Enterprise Products Partners.

EPD is a midstream energy company that provides natural gas processing and transportation services – in laymen’s terms, it manages the pipes that move natural gas around. EPD Chairman Dan Duncan, who is number 34 on the list of the 400 richest Americans, has bought a total of almost 220,000 shares since January, all while the stock was hovering near its peak.

There wasn’t any insider selling against Duncan’s buying either, Cramer points out. But Duncan does hold put options that get exercised by non-insider EPD employees, and part of his buying must be to maintain the size of his stake in the company – but not all. As far as Cramer is concerned, a purchase of this size of EPD stock most likely means Duncan thinks it’s just way too cheap.

EPD has a great yield, too, at 5.8%. That’s better than owning Treasurys, Cramer says, even before factoring in the tax advantages of dividend payments. And EPD increased the dividend last quarter for the 11th straight time. This makes EPD a good play even for conservative investors looking for income, but it still has great upside potential, Cramer says.

Bottom Line: When you see insiders buying a stock near its 52-week high, that’s the special sauce. EPD has it, and that’s why Cramer thinks it’s a mega-buy.

Questions? Comments?