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 12/9/08

Total Value Purchased

52-Week Change

Akamai Technologies (Nasdaq: AKAM  )

$13.96

$1,140,976

(64.2%)

Global Industries (Nasdaq: GLBL  )

$3.33

$3,183,701

(85.4%)

TBS International (Nasdaq: TBSI  )

$6.47

$902,828

(85.2%)

Visa (NYSE: V  )

$53.53

$705,462

(4.9%)*

Walter Industries (NYSE: WLT  )

$16.79

$201,085

(54.9%)

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle.*Visa began trading on March 19, 2008.

Can Akamai still deliver?
Talk about a crazy week. At the same time that industry watcher Dan Rayburn was reporting that longtime Rule Breakers recommendation Akamai had been haphazardly cutting prices, company co-founder Tom Leighton bought 100,000 shares.

Call it a bull versus bear showdown. So far, the bears are winning -- just look at those returns! Those bears include CAPS investor Internettech, who predicted massive price cuts over the summer:

Both [Level 3 Communications (Nasdaq: LVLT  ) ] and [AT&T] have recently deployed new working content management networks that are in place and will be getting customer wins happily with prices that are half of what Akamai charges. The difference is that they are both running global networks alongside the CDNs which Akamai does not. Moreover, they have deeper pockets to invest in the new faster, emerging hardware.

Our 120,000-strong Motley Fool CAPS community mostly disagrees:

Metric

Akamai

CAPS stars (5 max)

****

Total ratings

2,410

Bullish ratings

2,307

Percent Bulls

94.9%

Bearish ratings

103

Percent Bears

5.1%

Bullish pitches

360

Bearish pitches

17

Data current as of Dec. 10, 2008.

Strong numbers, to be sure. Yet if Rayburn is right -- if Akamai is relying on random price cuts to preserve market share -- it's a poor sign. Not that price cuts in general bother me. What's troubling is Akamai's apparent lack of pricing discipline.

Does that mean that you or I should sell Akamai in a panic? Of course not. The underlying business is performing far too well. Returns on invested capital are rising even as margins come under pressure -- an excellent indicator.

What's more, Akamai's newer, high-margin businesses, such as application acceleration and ad delivery, aren't easily duplicated. Roughly half of new customers were buying enhanced services in the third-quarter, Chief Financial Officer JD Sherman told analysts in announcing results.

Finally, if President-elect Obama gets his way, and 95% of Americans are given access to free broadband Internet, we'll see an explosion of content that could substantially increase demand for CDN services. Emerging players and infrastructure suppliers could find themselves racing to catch a curl that Akamai, Level 3, and Limelight Networks (Nasdaq: LLNW  ) are already riding.

So, sure, be cautious. Fools always are. But don't ignore the whole story, either. Leighton, a MIT professor, isn't $1.1 million stupid. He's buying for a reason.

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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Fool contributor Tim Beyers is slowly improving his CAPS score. Thankfully, he's doing better as an analyst for Rule Breakers, which counts Akamai among its list of recommendations. See Tim's portfolio holdings and a collection of his writings. You can also follow him on Twitter, where he posts as @milehighfool. Tim owned shares of Akamai at the time of publication. The Motley Fool's disclosure policy knew a rich executive once. She never bought anything.


Read/Post Comments (2) | Recommend This Article (15)

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 December 10, 2008, at 4:56 PM, DanRayburn wrote:

    Hey Tim, I'm not quite sure I understand what you mean when you say:

    - Both [Level 3 Communications (Nasdaq: LVLT)] and [AT&T] have recently deployed new working content management networks that are in place and will be getting customer wins happily with prices that are half of what Akamai charges.

    Do you mean content management platforms? Not sure what a "content management networks" is, but if you mean platform, AT&T has not deployed one. They are working with Qumu and others who deploy the solution inside a firewall, but it's not an AT&T product.

    Also, when you say that:

    - The difference is that they are both running global networks alongside the CDNs which Akamai does not. Moreover, they have deeper pockets to invest in the new faster, emerging hardware.

    Not sure what you mean? Akamai's network is global, do you mean that AT&T and Level 3 own and operate their own network, which Akamai doesn't? Also, while AT&T and Level 3 are larger in terms of size, I don't think that necessarily means they have deeper pockets to invest. To date, AT&T's CDN network has less than 5% of the capacity that Akamai has, so if AT&T has more money to spend, they have not yet sunk even $100M into the product.

    Thanks.

  • Report this Comment On December 10, 2008, at 5:04 PM, TMFMileHigh wrote:

    Hey Dan. That wasn't me ;-) That was bearish investor Internettech who made those comments. Included here for another perspective and because he predicted the price cuts. Internettech? Care to respond?

    Any further word from Akamai on price cuts?

    Also, for anyone else tuning in, Dan's blog post in full: http://tinyurl.com/5tyv2b

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