Finding solid returns is the goal of the game when it comes to stock investing, and investors of all stripes are always on the lookout for a reliable strategy. One common mode, followed by retail investors seeking accurate clues for stocks on the way up, is keep track of insider trades.

Corporate insiders are company officers, in high positions, with responsibility to Board members and shareholders alike for bringing in profits and stock price gains. Their positions give them a deeper knowledge of their companies’ inner workings, knowledge that can inform their opinions on where the company’s stock is likely to go.

In short, insiders have a leg up when trading in their own company’s stock. And to prevent that becoming an unfair advantage, governmental regulators require them to regularly publish their trading activity. This is public info, and careful investors can watch it for hints – based on insider buying patterns – of stocks primed for gains.

Bearing this in mind, we used the Insiders’ Hot Stocks tool from TipRanks to point us in the direction of “Strong Buy” stocks the insiders are snapping up. We found two names flashing signs of strong insider buying that warrant a closer look. It also doesn’t hurt that both are high-yield dividend payers.

Energy Transfer LP (ET)

The first stock we’ll look at inhabits the energy sector. Energy Transfer is a midstream company, operating in the area between the wellheads and the distributors. Midstream companies like ET make it their business to gather and transport crude oil, natural gas, and natural gas liquids from the production fields to the refineries, storage facilities, and import/export terminals. Energy Transfer has a network of assets, including pipelines, terminals, and storage tanks, connecting operating areas in Texas, Oklahoma, and Louisiana, as well as North Dakota and Appalachia.

The economic reopening that has proceeded apace this year – even as COVID hasn’t gone away – has been good for ET’s business. The company’s revenues, which were depressed through 2020, have rebounded significantly this year. While they peaked in 1Q21, at $17 billion, the 2Q21 top line of $15.1 billion is still better than any quarter in 2019 or 2020. EPS for Q2 came in at 20 cents, up 53% from the year-ago quarter.

Energy Transfer also recorded a stronger cash flow in 2Q21 than in the prior year’s second quarter. Distributable cash came in at $1.39 billion, compared to $1.27 billion in the prior year – a gain of 9.4%.

Sound financial results underpinned Energy Transfer's dividend, with the company reiterating its $0.153 per common share dividend. At this rate, the payment annualizes to $0.612 per common share, and gives a yield of 6.6%. This compares favorably to the ~2% yield found in the broader markets.

Turning to the insiders, the recent move on this stock comes from Board member Richard Brannon. Brannon bought up 44,000 shares for just over $403,000 this month, and now holds a stake in the company worth well over $2.5 million.

Among the bulls is Raymond James analyst Justin Jenkins, who rates ET shares a Strong Buy along with a $13 price target. Investors could be sitting on returns of ~40%, should his thesis bear fruit over the next 12 months.

Backing his stance, Jenkins writes: "Another $1.5 billion was lopped off of debt balances in 2Q21, positioning ET for a pivot to overall capital allocation back to equity. Moving forward, day-to-day DAPL headlines can always pop up... but the focus should be on the completion of the ENBL deal and what ET can do with excess cash flow in 2022+. We aren't betting against one of the largest and most integrated asset bases in a >$65/bbl WTI price scenario and still argue that the stock's jarring ~7x 2022E EV/EBITDA multiple already prices in substantial externalities..."

Enterprise Products Partners (EPD)

The second stock we’re looking at, Enterprise Products Partners, is another energy midstream company. This firm controls oil and natural gas terminals and pipelines that feed product from production regions Appalachia, the Midwest, the Rocky Mountains, and Texas to processing, storage, and terminal facilities on the Gulf Coast. Enterprise claims more than 50,000 miles worth of pipelines, and boasts storage space for 160 million barrels of oil and 14 billion cubic feet of gas.

In the second quarter of the year, Enterprise showed an EPS of 50 cents on revenues of $9.3 billion. Both were up slightly year-over-year, and in-line with expectations.

Like many energy companies, Enterprise is also known as a dividend champion. The company pays out regularly and consistently, and offers investors a high yield. The current dividend is 45 cents per common share, annualizing to $1.8 and yielding 8.2%.

Turning to the insiders, we find two major buys this month. CEO A.J. Teague bought 23,000 shares for $498K, while EVP John Rutherford picked up 10,000 shares for $222K. Teague now holds over $49 million worth of EPD, while Rutherford’s stake reaches $1.2 million.

T.J. Schultz, 5-star analyst from RBC, writes of EPD: “We think EPD's large asset footprint should allow it to pick off some low-hanging fruit related to the energy evolution theme, particularly around carbon capture & storage and hydrogen logistics, though these projects are a couple years out. On the base business, EPD is still leaning into petchem (natural competitive advantages vs midstream peers), and, as EPD potentially prioritizes attractive and accretive growth projects over more buybacks, we think this segment can capture an increasing mix of growth capex dollars.”

In line with these comments, Schultz gives EPD an Outperform (i.e. Buy) rating, with a $29 price target to indicate room for a 33% one-year upside.

This is another stock with a unanimous Strong Buy consensus from the Wall Street analysts; there have been 6 positive reviews of EPD posted in recent weeks. The shares are trading for $21.85 and the average price target of $28.67 implies an upside potential of 31% for the year ahead.

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