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A Half Dozen Stocks Insiders Say You Should Buy in This Pullback
By Michael Brush
Exclusively for InvestorIdeas.com
August 08, 2007
Pssst...Insiders are saying it’s safe to go back in the water. While investors panic about how far damage from sub-prime loan problems will spread through the financial sector and the economy, a new optimism among insiders tells me the overall damage won't be too bad.
They’re now buying a lot more and selling less. The shift in sentiment is so dramatic that InsiderScore.com says it hasn’t seen this kind of optimism in three years. Not surprisingly, we are seeing some of the biggest buying in the financial space – the sector hit the hardest by fears of sub-prime damage and rising rates on risky loans.
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But there’s also significant buying in other sectors that have been weak – like energy stocks with exposure to natural gas – and even a little in retail. While I’ve seen noteworthy buying at large-cap names like Merrill Lynch (MER) and General Electric (GE), as usual at Insiders Corner we’ll focus on the small and micro cap names that insiders like the most.
Financials
Financial stocks have been hammered because of concerns about sub-prime problems and the downturn in activity in the credit markets. Investors are choosing to sell now and ask questions later. But insiders at several stocks are saying: Enough is enough already! Here are some top examples in the small-cap space.
ACA Capital Holdings (ACA)
ACA Capital Holdings appears to be positioned at ground zero for credit worries. It provides financial guaranty insurance to players in the credit derivative, collateralized debt obligation and structured finance markets, among others, all scary places to be right now. The stock got hit in mid-July by a Credit Suisse downgrade because of exposure to the sub-prime mortgage market. But it had already been tumbling. ACA Capital Holding shares have fallen to around $7 from around $15 in May. Down here, insiders are saying the selling is overdone. They purchased $309,000 worth of stock at an average of around $6.40 on August 1. ACA Capital has a market cap of $259 million.
GSC Investment (GNV)
The big fear on Wall Street now is that the higher rates on riskier loans will continue to crimp the buyout trend. Of course, stocks have generally been in an uptrend because earnings and the economy have been strong, and valuations still look reasonable. So a slowdown in takeovers shouldn’t really matter too much. But investors logically think it spells bad news for GSC Investment which specializes in buyouts and acquisitions of medium size companies. That’s one reason GSC Investment shares hit the skids in July, falling below $12 from $14 last spring. Insiders are telling us the sell off is way over done. They have purchased $1.8 million worth of stock in the past month at prices of about $12 to $13.
Meadowbrook Insurance Group (MIG)
Meadowbrook Insurance Group, which offers several lines of insurance -- from accident and health to property and casualty -- was already weak even before the market mayhem began. The chief reason: It announced a share offering and lowered earnings guidance on July 9. The stock recovered briefly from that damage, but then got caught in the market downdraft. Insiders at this $324 million market cap company bought $381,000 worth of stock on August 1 at around $9. Insiders were pretty big sellers back in May when they dumped about $1 million worth of stock at about $11.40 – so they seem to be market timers worth following.
Retail
Blockbuster (BBI)
The video rental company Blockbuster has been waging a nasty price war against competitor Netflix (NFLX) – to build its online subscriber base (http://articles.moneycentral.msn.com/Investing/CompanyFocus/ProfitFromTheBlockbusterNetflixWar.aspx). That’s taken a severe toll on Blockbuster profits and its stock. But at some point, Blockbuster will back off the price war to recoup profits – which will help turn around the stock. Chief executive James Keyes may be signaling that shift in tactics will come sooner rather than later, because he bought $2.98 million worth of Blockbuster stock at an average of $4.40 on July 30. There’s a good chance he’ll turn things around on the brick and mortar side of the business as well. After all, he managed to do so in his prior job at 7-Eleven.
Charlotte Ruse Holding (CHIC)
Shares of the retailer Charlotte Ruse nearly tripled from when we pointed out that insiders were buying back in April, 2005 (http://www.investorideas.com/insiderscorner/Articles/Turnaround_Prospects.asp). But the stock has been weak all year, and it got hammered in late July after it guided down for the fourth quarter. Insiders now see value once again. They bought $240,000 worth of stock for about $18.50 on July 30. Since they were astute buyers the last time around, I’d follow them again this time.
Energy
McMoRan Exploration (MMR)
McMoRan Exploration explores for and develops oil and natural gas deposits offshore in the Gulf of Mexico and in Louisiana and Texas. Its stock shot higher on July 12 when it announced that its Flatrock well in the Gulf of Mexico is expected to start production soon. Since then, the stock has fallen right back down to where it began, at around $14. Insider think the round trip is unwarranted because they bought about $1.5 million worth of stock at around $14.60 in late July after the pullback.
The bottom line : Insider buying is no guarantee a stock will do well. Just look at the disaster that Akamai Technologies (AKAM) turned out to be – falling to $33 recently even though an insider bought $1.5 million worth of stock for about $44 back in May. Thankfully, we missed that one. But be sure you take in the lesson from that mishap: Consider the stocks above because insiders like them in the current weakness, but never go overboard with positions you take on the insider buy signal.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner:
http://www.investorideas.com/insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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