Stocks the Rich Executives Are Buying

Put five Fools in a room, ask them how they invest, and you'll likely get five different answers. Some like growth, others value, or small caps, or dividends, or, well, you get the picture.

Yet while our styles differ, we all want excellent, engaged managers running the companies we own. We like it even more when these managers are also owners -- investors like you and me who, in trying times like these, are willing to buy as others sell. That's why I write this column weekly.

The week's buying
So which rich executives are buying now? Have a look, courtesy of our friends at Form 4 Oracle:

Company

Closing Price 10/29/08

Total Value Purchased

1-Year Change

McDonald's (NYSE: MCD  )

$57.18

$1,100,038

(3.4%)

Best Buy (NYSE: BBY  )

$23.15

$37,424,277

(52.7%)

Coventry Health Care (NYSE: CVH  )

$11.82

$997,801

(79.2%)

Philip Morris International (NYSE: PM  )

$41.55

$188,000

(15.9%)*

Dillard's (NYSE: DDS  )

$4.91

$1,806,645

(78.3%)

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle, SEC filings.
*Philip Morris started trading March 17, 2008.

Wonderful, beautiful, dangerous Best Buy
Have all the billionaire owners lost their minds? Too many of them are pledging collateral to buy more shares of the companies they created. Chesapeake Energy co-founder Aubrey McClendon comes to mind. So does Oracle's (Nasdaq: ORCL  ) Larry Ellison. Now you can add Richard Schulze, chairman of Best Buy, whom Forbes ranks as the 105th richest American with a $3.5 billion fortune, to the list.

From Best Buy's latest proxy:

The figure represents: (a) 62,497,776 outstanding shares registered in the name of Mr. Schulze and a co-trustee, and held by them as trustees of a trust for the benefit of Mr. Schulze, of which up to $150 million aggregate amount of shares have been pledged by the trust as collateral to secure a line of credit. [Emphasis added.]

Any time you see the word "collateral" used in this way, it's usually a sign of margin buying. Interestingly, Best Buy doesn't disclose how many shares are at risk. So let's do the math: As of yesterday's close, $150 million was equal to roughly 64,800 shares. That's good news; Schulze wasn't overleveraged in the first quarter.

Our mildly skeptical, 120,000-strong Motley Fool CAPS community should enjoy reading that:

Metric

Best Buy

CAPS stars (5 max)

***

Total ratings

2,761

Bullish ratings

2,424

Percent Bulls

87.8%

Bearish ratings

337

Percent Bears

12.2%

Bullish pitches

386

Bearish pitches

61

Source: CAPS, as of Oct. 30, 2008.

Mostly, they think it's time to buy. "This stock has been pummeled due to low consumer confidence and fears of a global financial meltdown," CAPS investor FreeFlyingFool wrote last week. "That said, I think the beating has been overdone. Three factors that should drive BBY once the economy stabilizes: The move to flat panel TVs and HDTV; the shift to Blu-Ray DVD players (and, consequently, Blu-Ray DVDs); the seeming collapse of their largest rival, Circuit City."

Fool co-founder David Gardner, who has named Best Buy a Stock Advisor pick, agrees. From a recent update to subscribers: "Recent innovations like TagTrade help Best Buy to continuously reinvent its stores and adapt to ever-shifting customer desires. It's why Best Buy always manages to outpace rivals like Circuit City and RadioShack (NYSE: RSH  ) ."

I'll add that the valuation looks very attractive right about now. Best Buy's dividend yields 2.3% and the stock trades for roughly half the 13% earnings growth rate analysts expect it to achieve over the next 5 years, resulting in a 0.59 PEG ratio.

Doesn't all of that make Best Buy a best buy? Sure, if you're buying in cash. Is Schulze? He's spent more than $37 million to acquire stock over the past week.

Now, it's absolutely possible that a billionaire like Schulze has that much cash lying around, or that he's liquidated other assets to load up on shares of the company he founded. But it already seems that he is dabbling with margin. We also know from history that these are exactly the types of buys McClendon was making in leveraging his stake in Chesapeake. Color me nervous.

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.

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Best Buy is a recommendation of the Inside Value and Stock Advisor services. Chesapeake Energy is an Inside Value pick. Coventry Health Care is a Stock Advisor selection.

Fool contributor Tim Beyers, thanks to the market meltdown, is ranked near the bottom in CAPS. He's also an analyst for Rule Breakers. Read all of Tim's Foolish writings here. Tim owned shares of Oracle at the time of publication. The Motley Fool owns shares of Best Buy. Its disclosure policy is a best buy, too.


Read/Post Comments (1) | Recommend This Article (3)

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 November 03, 2008, at 1:54 PM, stockpower wrote:

    Tim,

    See my blog on BBY's power outage. Do you think it a couple of days of down systems will have an impact on Oct sales? Or, positively impact 4th quarter. Is it enough to make a difference?

    Stockpower

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