Can This Stock Go Higher?

Is Supervalu (NYSE: SVU  ) headed higher or lower? That's the question we ask when we evaluate insider buying and selling. We ask because how executives spend their paychecks is often a reflection of what they think of their companies' prospects.

Of course, not all buys are equal. According to two decades worth of research from Dr. H. Nejat Seyhun compiled in his book Investment Intelligence from Insider Trading, buying is most predictive when it (a) comes from the CEO or other top-level executive, and (b) it's performed in bulk. Seyhun found buys of between 10,000 and 100,000 shares to be most informative.

How do SUPERVALU's managers measure up against Seyhun's benchmarks over the past year? See for yourself:

Insider Rating

Bullish
No open market selling over the past year, and a big recent purchase by CEO Craig Herkert.

Business Description

One of the world's oldest and largest grocery store chains, including Albertson's.

Recent Price

$15.42

CAPS Stars (out of 5)

****

Percentage of Shares Owned by Insiders

1.12%

Net Buying (Selling)*

$2.73 million

Last Buyer (% Increase)

Craig Herkert, CEO and President
25,000 shares at $14.34 apiece on Jan. 15, 2010
(Purchase bolstered direct holdings by 8%.)

Last Seller (% Decrease)

None over the past 12 months

Competitors

Kroger (NYSE: KR  )
Safeway (NYSE: SWY  )

CAPS Members Bullish on SVU Also Bullish on

Wal-Mart (NYSE: WMT  )

CAPS Members Bearish on SVU Also Bearish on

Realty Income (NYSE: O  )

Recent Foolish Coverage of SVU

The S&P 500's Biggest Movers
Not Enough Green at This Grocer
Store Brands Killing the Competition

Sources: Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Jan. 22.)
*Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares that executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: Bullish
Grocery is one of these businesses that's at once wonderful and awful. Wonderful, because everyone needs food and there are only so many stores that can serve a certain amount of acreage. Place a grocery store well enough, and it'll enjoy a natural monopoly among nearby residents. Where else will they shop for eats that isn't McDonald's (NYSE: MCD  ) or some other fast food joint?

But grocery stores are also an awful, commodity business where price is now everything. Don't believe me? One of the most popular apps for Apple's (Nasdaq: AAPL  ) iPhone is a barcode scanner called RedLaser, which helps shoppers scan items and then search the Web for better prices at nearby stores.

How is SUPERVALU supposed to balance the cost of catering to these digitally armed skinflint shoppers with the needs of a unionized workforce that's already suffered deep pay cuts?

Judging by their comments at CAPS, Fools aren't entirely sure. But at less than 10 times forward earnings, they like the price. So does Morningstar, which predicts rising operating margins leading to $3 to $3.50 in per-share net income in two years' time. At that point, analyst Mike Tian sees SUPERVALU as a $30 stock.

CEO Craig Herkert would appear to agree. On Jan. 15, he bought 25,000 shares at $14.34 piece, positioning himself for a double if Tian and the wider CAPS community prove to be correct. I think they are. As such, I added a long position in SUPERVALU to my CAPS portfolio earlier this morning.

Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate SUPERVALU.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here or use the comments box below. I'll write this column as often as you, our readers, demand.

Get more of the inside scoop with related Foolishness:

Wal-Mart is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the market-beating Motley Fool Rule Breakers stock-picking team. He had stock and options positions in Apple at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy has its eye on you.


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