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 today.

The week's buying

Company

Closing Price 6/11/08

Total Value Purchased

52-Week Change

China Security & Surveillance (NYSE: CSR  )

$16.44

$306,300

17.4%

Jarden (NYSE: JAH  )

$19.36

$3,196,150

(53.6%)

Masco (NYSE: MAS  )

$16.98

$3,489,940

(41%)

MVC Capital (NYSE: MVC  )

$14.79

$79,447

(24.3%)

Wells Fargo (NYSE: WFC  )

$25.55

$1,052,368

(27.9%)

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle, SEC filings.

Don't mess with Texas, Wells Fargo

Recent history hasn't been kind to insiders. Bankers, especially. Here's why:

  • Insiders at Wachovia (NYSE: WB  ) were buying at around $38 a share in November. The stock is down roughly 50% since.
  • Citigroup's (NYSE: C  ) CEO for Latin America and Mexico, Manuel Medina-Mora, bought 185,000 shares for about $27 apiece in January. The stock trades for $20 a share today.

Not much of a record, is it?

I'll understand if banks are off your list of potential investments for the time being -- even those where insider buying is occurring, like Wachovia, Citigroup, and today's topper, Wells Fargo.

After all, the California-based banker gets mixed reviews from our 105,000-plus-strong Motley Fool CAPS community. Behold:

Metric

Wells Fargo

CAPS stars (out of 5)

***

Total ratings

2,098

Bullish ratings

1,860

Percent bulls

88.7%

Bearish ratings

238

Percent bears

11.3%

Bullish pitches

317

Bearish pitches

35

Data current as of June 11, 2008.

I can't blame them. Warren Buffett's Berkshire Hathaway, a longtime holder of the stock, has trimmed its position by nearly 21 million shares since December.

We can't know exactly why Buffett, partner Charlie Munger, and the rest of the Berkshire investment team have trimmed their stake in Wells Fargo. What we do know is that they're looking very smart today. Shares of the bank are down about 15% year to date.

Worse, its Texas Ratio -- a measure named for its ability to accurately predict bank failures of the sort that plagued Texas in the 1980s -- has been steadily climbing. More on that in a minute.

First, let's talk about the ratio itself. Created by RBC Capital Markets analyst Gerard Cassidy and a team of colleagues, the ratio is supposed to act as a sort of early warning system by comparing problem assets with capital. Banks with a low ratio are better than those with a high -- or rising -- ratio.

Calculating it isn't difficult. First, combine the bank's nonperforming loans with the value of those marked 90 days past due. Then divide by the sum of its tangible book value and provision for loan losses. The resulting percentage reveals the claim that bad loans are making upon the bank's capital. As it approaches and exceeds 100%, the bank can be viewed as being in trouble.

Now, here's how Wells Fargo rates:

Metrics (in millions)

3/31/08

12/31/07

12/31/06

12/31/05

90-day past due loans

$6,919

$6,393

$5,073

$3,606

Nonperforming loans

$3,259

$2,679

$1,666

$1,338

Tangible book value

$18,945

$16,890

$16,215

$16,896

Allowance for loan losses

$5,803

$5,307

$3,764

$3,871

Texas Ratio

41.1%

40.9%

33.7%

23.8%

Source: Capital IQ, a division of Standard & Poor's.

I don't like that the bank's Texas Ratio is rising. What I do like is that it's climbing at a slower pace than it has been. To some, that may suggest the bank's executives are doing a better job of cultivating good assets as they prune the bad ones.

CAPS investor tmcmill81 best summed up the bull case in a post from earlier today, I think. Quoting:

Probably the best bank ... this will outperform with dividends for a little while, probably not by as much as some of the beaten down names though, such as [Citigroup], [Merrill Lynch], and [Lehman Brothers]. However, it will outperform without the risk associated with the other names.

Insiders appear to agree. CEO John Stumpf was buying in May and, last week, chairman Richard Kovacevich plunked down more than $1 million in personal wealth to add to his stake.

Impressive. Yet I'm not as prepared to pull the trigger as Kovacevich is; a rising Texas Ratio presents too much risk. I'd rather wait a quarter to see if management can, indeed, reverse the trend.

There's your update. See you back here next week, when we dig through more insider filings in search of the next home run stock.

Get the inside scoop on stocks of all sizes with related Foolishness:

MVC Capital is a Motley Fool Hidden Gems pick. Berkshire Hathaway is a recommendation of both the Inside Value and Stock Advisor services. Masco is an Income Investor choice. The Motley Fool owns shares of Berkshire.

Fool.com contributor Tim Beyers, who is ranked 15,917 out of more than 105,000 participants in CAPS, also writes for Rule Breakers. He owned shares of Berkshire at the time of publication. Find Tim's portfolio here and his latest blog commentary here. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

DocumentId: 663657, ~/Articles/ArticleHandler.aspx, 4/18/2014 9:32:31 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement