Famous 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 only buy for one: They think the price is going to go up.
Below, we highlight a handful of insiders who made big purchases of their company's stock 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 if they agree with the insiders about the stock's prospects.
|
Stock
|
Insider, Position
|
Market Value of Transactions
|
CAPS Rating (out of 5)
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| Edison International (NYSE: EIX ) |
Bradford Freeman, director
|
$2.0 million
|
***
|
| Medtronic (NYSE: MDT ) |
Jack Schuler, director
|
$3.0 million
|
*****
|
| PIMCO Corporate Opportunity Fund (NYSE: PTY ) |
William Gross, portfolio manager
|
$4.0 million
|
***
|
Sources: wsj.com, Motley Fool CAPS.
Although following the lead of insiders can be profitable, we still recommend you do further due diligence to determine whether these stocks make a good addition to your portfolio. This isn't a list of stocks to buy, but just the inside track on companies you might want to check out further.
An investment in the future
Theory and reality often collide when you try to layer free- market concepts like peak pricing on government-regulated industries like utilities. Smart meters, one of the key components in upgrading to a Smart Grid, have been installed by California's Edison International, Exelon (NYSE: EXC ) , and Southern (NYSE: SO ) . Regulators have been loathe to allow real-time pricing, and the utilities themselves have acted like dunces when it came to implementing the program.
Maybe Edison International is having second thoughts about being so green. While it expected to deliver as much as 20% of its power from renewable sources by the end of 2010, and under California regulations that should climb to 33% by 2020, the utility backed out of an agreement with Tessera Solar to buy solar power from its 663-megawatt plant being built in the Mojave Desert.
With Edison International still supporting incentives for plug-in electric cars (why not? it's free money), there remains a certain level of commitment. It might not be so shocking to understand why insiders are buying in. CAPS members have committed to the utility, however, with 95% of those rating it picking it to outperform the broad market averages.
You can go to the Edison International CAPS page and let us know what you think.
A new CEO on deck
Fewer patient procedures, longer product development cycles, and the uncertainty about Obamacare have made medical devices manufacturer Medtronic a tempting value candidate.
Yet a study showing that 20% of patients receiving implantable defibrillators didn't meet the guidelines for getting one is likely to make Medtronic more of a value if it depresses the market for them. Boston Scientific (NYSE: BSX ) and St. Jude Medical (NYSE: STJ ) are bracing for the effects, too. At $25,000 each, the devices have created a rich $4.3 billion market.
Some are also questioning the use of a Medtronic device used in spinal surgery on veterans a few years back. But with annual sales of nearly $16 billion, Medtronic is one of the world's biggest medical device makers, and it will have a new CEO in April, which might revive a sluggish company. The stock is about 20% below its 52-week high, and director Jack Schuler may be expecting shares to get a jump-start.
CAPS member mattsmithsd agrees the stock is undervalued, and with its dividend of 2.4%, believes it's worth a wait.
Medtronic has a good dividend, they have had good earnings over the past year and analysts are expecting the earnings to rise roughly .10 per share for 2011 Quarter 1. I think this stock is cheap and will show significant gains in 2011
Follow Medtronic by adding it to your watchlist and having all the Foolish news and analysis gathered for you.
Advantage: Gross
Although Bill Gross has highlighted the weakness that exists in bonds, he has also made some targeted investments, too, focusing on his company's municipal bond funds before moving to corporate bonds with the PIMCO Corporate Opportunity Fund. These funds have regained some of the ground they lost, so they might not represent the value they once had, but considering Gross's track record, shanelofgren says: "I like the yield, I like the asset class and most of all I like Bill Gross."
Head over to the PIMCO Corporate Opportunity Fund CAPS page and let us know what you see in investing alongside Gross in closed-end funds.
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 along with these insiders.
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