WHAT DO VIDEO-RENTAL

giant

Blockbuster

Mentor

Regular readers know that we search now and again for companies whose insiders either officers or holders of more than 10% of outstanding shares are purchasing their own shares. Such people often have a special insight into day-to-day operations that may elude analysts and other investors. When they start buying, you might want to consider doing so yourself.

Why have Blockbuster and Mentor insiders each snapped up around $12 million worth of their shares during the last six weeks? Perhaps they liked what they saw in our June 18 contrarian write-up and our July 2 return-on-equity screen. (Shares of Blockbuster and Mentor are up 29% and 10% since we picked them, compared with a gain of 1% and a loss of 1% during the same periods for the Standard & Poor's 500, respectively.) Or perhaps they just see something about their companies' prospects that makes shares seem undervalued.

In any case, we found a couple of fresh faces to look at today. We used our stock-screening tool to search our 8,300-company database for those in the top quartile in terms of dollars spent on insider buys within the past six weeks. And ever the bargain hunters, we made sure that price/earnings multiples based on 2003 projections were in the bottom quartile for their industries. See our recipe on the top right of this page for details on all of our requirements. Our search turned up a list of 13 names.

ProQuest
Ann Arbor, Mich.-based ProQuest traces its history back to 1907, a time when, instead of hiring a consultant to slap together two impressive-sounding worlds with a landlocked capital letter, a movie-camera outfit would simply name itself Bell & Howell, after its founders, Donald Bell and Albert Howell. Their camera business gave way to optical equipment and then microfilm. But in 2000, the company dumped stodgy business lines like cameras in favor of electronic publishing, and took on its new, Tony Robbins-style moniker.

ProQuest today has two business lines. Information and Learning sells archived media like newspapers, dissertations and out-of-print books to libraries, and a new K-12 content network called Bigchalk to schools. The division's second-quarter revenues, reported July 22, increased 6% year-over-year to $68.9 million. The Business Services segment sells catalogued parts data to automotive and water-sports companies. Second-quarter revenues increased 5% to $46.2 million.

While total second-quarter revenues of $115 million fell a bit short of the $118 million most analysts were looking for, earnings of $12.3 million, or 43 cents a share, beat the Reuters Research consensus by two cents. That sniffs of cost-cutting and, indeed, capital expenditures and software spending for the quarter fell 38% and 48%, respectively. Analysts have expressed concern, however, that tight library budgets will continue to restrict Information and Learning revenue growth in the second half of the year.

Why, then, would SPO Advisory, a Mill Valley, Calif.-based private-investment firm, chow down on 348,000 shares at around $24 each earlier this month? Perhaps it's because of recently launched XanEdu.

A play on Xanadu, the idyllic Coleridge poem setting-turned-Olivia Newton John-roller-rink hit, ProQuest's XanEdu aims to revolutionize schoolwork by offering customizable "CoursePacks." Teachers will be able to create courses themselves or use ready-made content, then provide students with print copies, online access or both. Students, meanwhile, will be freed from having to drop $130 on brand new chemistry texts each year.

Of course, SPO may have bought shares merely because they appear cheap, at just 14 times the $1.81 a share earnings consensus for 2003, compared with 20 for the computer-services group. ProQuest is projected to increase earnings at more than 15% annually over the next five years, compared with 11% for peers. That makes for a price/earnings-growth, or PEG, ratio of 0.9, less than the group's 1.8 and the S&P 500's 1.7, according toi Multex.

Chesapeake Energy
OK, we realize that those of us in the Northeast who spent last Thursday night eating a can of corned-beef hash by candlelight might not be too keen on utilities right now. So let's make clear that Oklahoma City-based Chesapeake Energy is a natural-gas producer and thus had nothing to do with the recent outage of power and brains on the part of the big electrics.

Chesapeake's second-quarter results, reported July 28, showed revenues of $316 million, more than doubling the year-earlier period's $152 million, while earnings of $76 million were up more than threefold from $22 million. Earnings per share of 31 cents beat the consensus by a nickel. The company is expected to earn 30 cents in the current quarter, up from last year's 13 cents.

Of course, those projections depend on the price of gas in coming months. But analysts say a supply shortfall will likely keep average gas prices elevated at least through the third quarter, and keep even the most price-sensitive industrial firms paying up.

Yet the company trades at just 9.5 times the $113 earnings consensus for 2003, well below the industry's 14.6. And Chesapeake's long-term earnings-growth projection of 17.0% a year is nearly double its peers' 8.7%. With a PEG of just 0.6, compared with the group's 1.6, Chesapeake is for cheapskates.

"We believe Chesapeake's production and reserve growth trends should be sustainable and should enable the company to continue generating significant increases in shareholder value in the years ahead," said Chief Executive Aubrey K. McClendon at the time of the earnings report. Management happy talk? Maybe, but McClendon was just as happy to buy 100,000 shares three days later at $9.53, while a downright tickled President Tom Ward grabbed 210,000.