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 9/2/08

Total Value Purchased

52-Week Change

99 Cents Only Stores (NYSE: NDN  )

$8.70

$898,825

(29.6%)

Century Aluminum (Nasdaq: CENX  )

$44.97

$225,830

(8.6%)

Dollar Thrifty Automotive (NYSE: DTG  )

$4.75

$39,990

(83.9%)

Redwood Trust (NYSE: RWT  )

$19.07

$8,880

(44.2%)

Yahoo! (Nasdaq: YHOO  )

$18.75

$114,660

(17.5%)

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

Yay for Yahoo!
Perhaps it's time to say yes to the Y! Last week, Chief Accounting Officer Michael Murray purchased 6,000 shares of Yahoo! at better than $19 each. Days before that, board member Gary Wilson added 1,000 shares to his position.

Are these guys nuts? Our Motley Fool CAPS community, 115,000-plus members strong, might say so:

Metric

Yahoo!

CAPS stars (5 max)

**

Total ratings

5,188

Bullish ratings

4,285

Percent Bulls

82.6%

Bearish ratings

903

Percent Bears

17.4%

Bullish pitches

665

Bearish pitches

179

Data current as of Sept. 2, 2008.

You can count borisvolodnikov among the more vocal bears. "Yahoo's leadership wasn't smart enough to realize that it was more lucky than good. They failed to remain relevant and are now doomed to mediocrity," he wrote last month.

Ouch.

But not all Fools agree. "Icahn and the shareholders have woken up the CEO and he knows he will have to be very accountable to shareholders and the board. He will either get the company to outperform his competitiors or he will merge it with someone who can," wrote CAPS investor bulldogir two weeks ago.

Both pitches make sense to me. So, let's turn to the numbers. They aren't pretty; return on invested capital, at 3.5%, is barely above the historic rate of inflation. Free cash flow seems impressive at $1.6 billion over the trailing 12 months but pales when compared to the $4.1 billion search ad partner Google produced over the same period. Microsoft (Nasdaq: MSFT  ) , meanwhile, churned out more than $18 billion.

I knew Yahoo! was going to be the junior partner in Microhoo, but that's way too big a disparity to ignore. It suggests that, for now, the Y! is just, well, junior. And it may also explain why, even as insiders are buying, Legg Mason's (NYSE: LM  ) Bill Miller is selling. Wait for more insiders to buy before taking a nibble for yourself.

Whom should you trust?
Miller's selling brings up an interesting question. Whom do you trust more? Insiders? Or expert investors?

There's no easy answer but my personal litmus test contains three questions:

  1. How many insiders are buying?
  2. Do they outnumber sellers?
  3. What's the record of the investor who is selling?

On these, 99 Cents Only Stores doesn't score high. Chairman David Gold and wife Sherry together were buying in bulk last week and, while their buying easily outweighed fund manager Chuck Akre's selling over the past seven days, the Golds are very recent shoppers. Akre has been buying and selling since at least February. Overall, sellers easily outpace buyers over the past year.

And Akre's overall record as an investor is stellar; his FBR Focus (FBRVX) fund, though on a losing streak recently, has earned a 15% average annual return over the past decade, easily outpacing category peers.

Whom do I trust? Here, it's Akre. Only one insider (i.e., Gold) is buying and the CAPS community, with a two-star rating, doesn't like his business very much at these levels. Akre, also a skeptic, recently sent a letter to the board asking it to explain the rationale behind what seems to be an ill-fated strategy for the Texas market.

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:

Fool contributor Tim Beyers, who is ranked 18,651 out of more than 115,000 participants in CAPS, also writes for Rule Breakers, which counts Google among its core holdings. Get access to all of his writings. Tim had positions in Google's shares and 2010 LEAPs at the time of publication. The Motley Fool has a disclosure policy and owns shares of Legg Mason, which, along with Microsoft, is an Inside Value pick.


Read/Post Comments (1) | Recommend This Article (6)

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.

  • Report this Comment On September 03, 2008, at 11:25 AM, tomnsung wrote:

    Thanx, Tim, for including what highly-regarded fund mgrs. have been doing with the stks. highlighted by insider buying.

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