You're Not the Only One Buying Here

Famed money manager Peter Lynch gave us the inside scoop on how to look at insider transactions. Executives can sell their stock for any reason, he said, but they buy for only one: They think the price is going to go up!

Below, we highlight a handful of insiders who are making big purchases of their own companies' stocks in the past week. These aren't executives getting big chunks of shares from option grants. Rather, they're insiders putting their own money on the line by buying shares at market prices. We'll then pair that information with insights from the members of Motley Fool CAPS to see whether they think the stock has the same prospects the insiders do.

Stock

Insider, Position

Market Value of Transactions

CAPS Rating (out of 5)

American Superconductor (Nasdaq: AMSC  )

Kevin Douglas, 10% Owner

$5.8 million

**

Dell (Nasdaq: DELL  )

Michael Dell, Chairman and CEO

$100.0 million

**

Tejon Ranch (NYSE: TRC  )

Robert Stine, CEO

$0.8 million

****

Sources: wsj.com; Motley Fool CAPS.

Although following the lead of insiders can be profitable, we still recommend that you do further due diligence to determine whether these stocks make a good addition to your own portfolio. This isn't a list of stocks to buy, just an inside track on companies you might want to check out further.

An investment in the future
Shares of American Superconductor have fallen by 15% over the past month as concerns about its ability to continue growing linger. While Barron's apparently just discovered that Chinese wind-power generator Sinovel was American Superconductor's biggest customer, giving the publication pause, investors have had ample time to consider just how much the company relies on Sinovel.

The Barron's article points out the danger that Sinovel's production capabilities could outpace its sales. There's also increased competition from the likes of A-Power Energy Generation Systems (Nasdaq: APWR  ) , and consolidation is under way in the industry. The recent interest-rate increases in China may just be the start of an even greater tightening of credit, which will hit wind-power projects hard.

Against that backdrop, one of American Superconductors's 10% beneficial owners is staking a larger claim in the company. He's been buying shares since the beginning of November at ever lower prices -- more than $27.5 million worth.

CAPS member jscilla believes the company's products have huge potential, while monsoon100 has said there's more than just wind power to generate sales: "Profitable company on wind turbine products alone. Aging electric grid will need to be replaced and this [company's] products seem [to] be in a competitive position once that starts happening."

But only you can decide whether it's worth investing in it for your own portfolio. So add American Superconductor to your watchlist, and have all the Foolish news and analysis gathered together for you in one place.

Does this compute?
My Foolish colleague Anders Bylund says we shouldn't read too much into Michael Dell's purchase of Dell stock. Although the move is supposedly a vote of confidence in the company, Anders says, the market's reaction to the news (the stock jumped by almost 4%) is much ado about nothing.

I agree that when an executive sells his shares, it's pretty much a non-event for me. However, a $100 million purchase isn't chump change, even for a billionaire, and it seems Dell thinks his stock is a good value. Shares are down by 7% year over year, even after the bump they got, and it trades at less than 10 times 2011's earnings. Its enterprise value-to-free cash ratio is a minuscule 5.7 -- an indication of how much the market is undervaluing the stock.

IBM (NYSE: IBM  ) and Apple (Nasdaq: AAPL  ) took market share from Dell while it was out wandering in the wilderness (their shares are up by 13% and 55%, respectively, from last year), but Dell is now enjoying the upgrade cycle under way in technology, and visibleinvesting says that's just one part of why the computer maker will excel. The CAPS member also cites cloud computing and Dell Healthcare.

Let us know on the Dell CAPS page whether you think the growth story has cycled back around.

Advantage: Vantage
Tejon Ranch sounds like it might be some cattle-herding operation, but in reality it's a real estate investment trust developing commercial and industrial properties, along with an intent to build a resort mountain community in California. Yet its biggest revenue producer is its farming segment, where wine grapes, almonds, and pistachios are its biggest crops and make up 55% of total revenues.

With development properties located in southern California, Tejon Ranch won't have the same competition or clientele that it necessarily would if it was up north, where Vail Resorts (NYSE: MTN  ) has luxury ski resorts at Lake Tahoe. Tejon has negligible debt on its books, a thriving farming operation, and an opportunity to develop a slice of pristine land, 80% of which has been set aside for conservancy.

With the CEO's stock purchases being part of a 10b5-1 trading plan, this is a buy that wouldn't get me too excited. Yet 87% of the CAPS members rating the company believe it will be able to outperform the broad market averages. Head over to the Tejon Ranch CAPS page and round up some insight into its growth prospects.

On the inside track
Following the insiders can be a path to profits, but it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Sign up today for the completely free service, and tell us whether it's worth trading on this inside information.

Apple is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Apple and IBM. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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