You're Not the Only One Buying Here

Famed money manager Peter Lynch gave us the inside scoop on insider transactions. Executives can sell their stock for any reason, he said, but they only buy for one: They think the price will rise.

Below, we highlight a handful of insiders who've made big purchases of their own companies' stock in the last week. These aren't executives getting big chunks of shares from option grants. Instead, they're putting their own money on the line, 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)

Kratos Defense & Security Solutions (Nasdaq: KTOS  )

Bandel Carano, director

$1.0 million

*****

Nalco Holding (NYSE: NLC  )

Douglas Pertz, director

$0.2 million

****

NL Industries (NYSE: NL  )

Harold Simmons, CEO

$0.2 million

*

Source: wsj.com; Motley Fool CAPS.

Although following insiders' lead 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 the inside track on companies you might want to check out further.

An investment in the future
Defense contractor Kratos Defense & Security Solutions is binding up the industry under its broad umbrella. Last December, it bought Southside Container & Trailer, allowing it to sell military-grade shelters. It followed that by picking up electronic security systems provider Henry Bros. Most recently, Kratos announced its purchase of microwave technology leader Herley Industries (Nasdaq: HRLY  ) for $270 million.

Amid this aggressive spending spree, Kratos has won numerous, lucrative contracts from various government agencies, a prodigious display of firepower. Even with its shares 28% higher over the past three months, it trades at less than 16 times trailing earnings, amd looks very cheap when compared to its growth prospects.

Last October, before Kratos began its latest run upward, director Bandel Carano sank another $1 million into the company's shares. Obviously, he's still feeling good about its future. Highly rated CAPS All-Star rexlove noted that Kratos was undervalued last month, while Prodders liked the sight of insiders scooping up shares.

Let us know on the Kratos Defense & Security Solutions CAPS page whether this defense contender is ready to conquer the market.

Enterprising growth
Just because Warren Buffett and Berkshire Hathaway (NYSE: BRK-B  ) completely sold out of their position in Nalco Holding by the end of last year doesn't mean you should necessarily follow suit. It's likely they were just liquidating positions that GEICO's Lou Simpson had purchased before he retired.

Yet it was a good bit of timing on Buffett's part. Nalco just forecast a tough 2011 because of rising commodity costs; the stock dropped 8% on the news. Of course, Nalco's not alone in that department. Lubricant maker Lubrizol (NYSE: LZ  ) also had to contend with higher expenses, but its outlook was a lot more bullish than Nalco's, and its stock soared. Lubrizol also said it was buying Nalco's consumer-products business, a line that makes ingredients used in cosmetics.

Still, Nalco's passing along price hikes to its customers, so it expects to see the benefits from those increases flow through the financial statements throughout the year. With 91% of CAPS members rating Nalco to outperform, it seems they think this remains a very fluid situation.

You can follow along by adding the specialty chemical maker to your watchlist, where we'll aggregate all our Foolish news and analysis on the company for you.

Put up or shut up
Harold Simmons's purchase of NL Industries stock might not have been the biggest, but he's perhaps been one of the most consistent. Since July of last year, Simmons has been regularly buying blocs of company stock on the open market. Since he started, its shares are some 125% higher.

The specialty chemical company is a subsidiary of Valhi (NYSE: VHI  ) . CAPS All Star metoo105 takes a sum-of-the-parts look at NL, and apparently sees the same discount Simmons does:

Valhi owns 59% of Kronos and 83% of NL Industries and 100% of Waste Control Specialists, which is a private company that processes spent nuclear fuel. This gives Valhi assets of $740 million (NL Industries) and $1416 million (Kronos) for a total of $2.15 billion. Valhi has a market cap of $2.3 billion and an enterprise value of $3.9 billion. This places a rich valuation on the Waste Control Specialists piece of nearly $1.75 billion. Since the main nuclear portion won't be operational until late this year, it seems that NL Industries is the real value here.

You can total it up yourself by adding NL to My Watchlist, the Fool's free portfolio tracker, then heading over to the NL Industries CAPS page to give us your own special view of its growth prospects.

On the inside track
Following the insiders can be a path to profits, but it still 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 its worth trading on this inside information.

Berkshire Hathaway is a Motley Fool Inside Value choice and a Motley Fool Stock Advisor selection. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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