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Two MLPs With Heavy Insider Buying


These two MLPs have been beaten down, but judging by significant buying among corporate insiders, they could finally be in turnaround mode.

Numerous academic studies have shown that corporate insiders tend to be far savvier investors in their company's shares than the average investor. Of course, it's obvious that executives should be in the best position to know how their firm will fare.

However, in the short term, insiders don't always get it right. But their long-term record means that it's worth monitoring their buying and selling activity.

And for investors in master limited partnerships (MLP), it's especially timely to consider such patterns, given that MLPs barely finished 2012 in the black. At one point during November, MLPs dropped as much as 7% over about a week.

Although income investors depend on MLPs for their distributions, few were immune from the negative sentiment resulting from a decelerating global economy coupled with possible austerity measures. The space may have also suffered from tax-related selling, as investors booked gains in anticipation of higher taxes, as well as fear of a change to MLPs' tax-advantaged status.

While MLPs could certainly take a hit from a global economic downturn, the twin worries about taxes were temporary headwinds. As such, one would hope to see the management teams of MLPs taking advantage of short-term selling to buy additional units while they're beaten down.
In fact, there has been a decent spate of insider buying in the MLP space over the past six months. According to Bloomberg, the percentage of shares held by MLP insiders rose 4.5% over that period.

I then narrowed my search to just those MLPs that already have significant insider holdings. I like to see firms with high insider ownership because it suggests that management's interest is aligned with shareholders. So presumably it's even better to not only see high insider ownership, but also a meaningful jump in recent insider buying.

With these criteria in mind, there were two MLPs that stood out from their peers:

EV Energy Partners LP (NASDAQ:EVEP) and Inergy LP (NYSE:NRGY).

EV Energy executives boosted their holdings in the MLP's units by 37% over the past six months, bringing the total percentage of inside ownership to 11% of outstanding units. EV's output skews toward natural gas, and because the price of that commodity cratered this year, the upstream MLP's distribution grew just 0.5% year over year.
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