Who's Buying Now?

It's a new week, which means it's time to check the most interesting insider purchases.

After reading through numerous filings using insider tracking tool Form 4 Oracle, here are my top five now:

The week's buying

Company

Closing Price 4/17/07

Total Value of Stock Purchased

52-Week Change

California Coastal Comm. (NASDAQ:CALC)

$18.82

$166,240

(47%)

Consolidated Tomoka Land (AMEX:CTO)

$77.00

$150,004

33%

dELiA*s (NASDAQ:DLIA)

$8.79

$582,346

(19%)

General Electric (NYSE:GE)

$35.20

$710,800

6%

Luminent Mortgage Capital (NYSE:LUM)

$8.69

$212,837

10%

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle, SEC filings.CTO does not look to be an insider purchase.

Unfairly slimed by subprime?
Holders of Luminent Mortgage Capital stock have endured a tough three months. But excellent investors take advantage of such circumstances, especially when the fall isn't justified. Is that the case here? Most of the Fools participating in our Motley Fool CAPS investor intelligence database don't seem to think so:

Metric

Luminent

CAPS Stars (5 max)

**

Total Ratings

55

Bullish Ratings

46

Bull Ratio

83.6%

Bearish Ratings

9

Bear Ratio

16.4%

Bullish Pitches

8

Bearish Pitches

0

Data current as of April 20, 2007.

Let's look to the filings to see whether they're right. From the most recent 10-K:

Our target market is the Alt-A adjustable-rate loan. Alt-A is one of the fastest growing segments of the mortgage market. We believe that a majority of the prime loans made in 2006 were made in the Alt-A form. In the Alt-A market, borrowers choose the convenience of less than full documentation in exchange for a slightly higher mortgage rate.

Uh-oh. Alt-A loans, while not technically subprime vehicles, often behave similarly. But does that mean Luminent faces the same risks as Novastar Financial (NYSE: NFI  ) , Fremont General (NYSE: FMT  ) , and others like them? Don't be too sure. Back to the 10-K:

At December 31, 2006, the composition of our $8.5 billion in mortgage assets was as follows: 65.6% in prime quality securitized whole loans, 25.0% in AAA-rated and agency-backed short duration hybrid and ARM securities and 9.4% in credit sensitive securities with a weighted-average credit rating of BBB+. [Emphasis mine.]

That's a good sign. So is this:

Our mortgage loan portfolio has virtually no exposure to the subprime sector, which is currently generating high delinquencies. At December 31, 2006, mortgage loans with FICO scores less than 620, a measure which is generally considered to be an indicator of subprime, represented just 0.1% of our total mortgage loan portfolio. In addition, at December 31, 2006, none of our mortgage loans had loan-to-value ratios, net of mortgage insurance, greater than 80%.

If there's a noticeable problem here it's that 81.4% of Luminent's mortgage portfolio is Alt-A. But I'd be more worried if Luminent's customers lacked credit. They don't. According to the 10-K, the weighted average FICO score in Luminent's portfolio is 713. Credit scoring expert Fair Isaac calls anything above 700 "golden for most kinds of credit."

Luminent's management has expressed faith in its strategy by buying shares. Six executives and board members have purchased stock since the middle of last week. Chairman and CEO Gail Seneca had topped the list with $127,000 invested till director Donald Putnam spent $290,000 for 35,000 shares on Monday.

Meanwhile, Luminent has filed a 10b5-1 stock repurchase plan and is authorized to repurchase and cancel as many 2.4 million shares. Doing so at current prices would either be a colossal waste of capital or, more likely in my view, a very savvy bet on an oversold stock unfairly slimed by the subprime crisis. I'll be adding Luminent to my CAPS portfolio today.

That's all for now. See you back here next week when we dig through more insider deals in search of the next home run stock.

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Fool contributor Tim Beyers, who is ranked 1,728 out of more than 27,000 in CAPS, usually favors two scoops of ice cream over the inside scoop. Tim didn't own stock in any of the companies mentioned in this story at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on insider buying, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy is a strong buy.


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