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 only buy for one: They think the price will rise!

Below, we highlight a handful of insiders who are making big purchases of their own company's stock in the last week. These aren't executives getting big chunks of shares from option grants. Instead, they're insiders 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)

Coca-Cola (NYSE: KO  )

Barry Diller, director

$15.1 million

****

Sears Holding (Nasdaq: SHLD  )

Louis D'Ambrosio, CEO

$1.0 million

*

TransDigm (NYSE: TDG  )

Robert Small, director

$4.7 million

****

Source: 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 own portfolio. Thus, this isn't a list of stocks to buy -- just the inside track on companies you might want to check out further.

Who asked you?
Maybe Barry Diller knew that Diet Coke was gaining on archrival PepsiCo (NYSE: PEP  ) . This certainly isn't the first time he's bought large swaths of stock. Last November, the chairman of IAC/InterActiveCorp bought almost $17 million worth of Coca-Cola shares; his holdings now total more than $107.4 million.

In the cola wars, Coke also scored a public relations coup when Diet Coke snagged the No. 2 spot from Pepsi, which remains the world's second-largest soft drink maker. Soda drinkers bought 927 million cases of the diet soft drink last year, compared to 892 million cases of Pepsi. They were just about tied in 2009, suggesting that momentum has shifted considerably in Coke's favor as consumers move toward diet drinks. Both beverages, however, had smaller sales than in the previous year, making Pepsi's decline more dramatic.

Diller no doubt agrees with Warren Buffett, who recently wrote that he's expecting Coke's dividend to double over the next decade, for a growth rate of about 7% annually. That's enough for CAPS member jwitteveen to climb aboard Coke's sweet gravy train.

With 95% of the more than 5,700 CAPS members who have rated the soft drink maker expecting it to beat the market averages, it's obvious that they believe there's a lot more fizz to be found in its stock. Let us know on the Coca-Cola CAPS page whether we're seeing a new generation of growth.

Going down with the ship
I wouldn't make too much of Sears Holdings' new CEO's purchase of the retailer's stock. He just came on board, so he's got to show he's got some confidence in Sears and K-Mart flailing operations. Alas, he's most likely wasted his money.

D'Ambrosio's selection as chief executive is a head-scratcher. After three years of searching, they come up with someone who last headed up telecom equipment manager Avaya? Apparently, Chairman Eddie Lampert thinks consumers will mistake their local Sears for an Apple (Nasdaq: AAPL  ) store, or one of its appliances for Microsoft's (Nasdaq: MSFT  ) operating system. His letter to shareholders last month sought to draw parallels between the two tech giants and the old-line retailer. While that self-delusional chatter had everyone guffawing, it does give clues to D'Ambrosio's selection.

While 70% of CAPS members have rated Sears Holdings to outperform the broad market averages, the one-star rating they've assigned to the retailer suggests that think there are better places for your money. Shop for other opinions on the Sears Holdings CAPS page, or add it to your watchlist if you think it will become a tech wreck of its own making.

A transforming event
Despite unrest abroad and turmoil in Japan, the airline industry aims to capitalize on the stronger year it had in 2010. Aircraft parts supplier TransDigm Group expects the aerospace industry to survive as well, and as part of an acquisition it made to bolster its own bet, it just sold its fastener business to Alcoa (NYSE: AA  ) .

Director Small has been scooping up TransDigm shares for months now, particularly through his Berkshire Partners investment firm. Berkshire looks for companies that are industry leaders and have a strong financial history behind them, allowing them to hold up well in downturns. The partnership want its investments to have the potential to improve their profit margins, even as they strive to increase shareholder value. Doesn't sound too different from another investment firm with a similar name, does it?

CAPS member k0stid0g004 would undoubtedly agree TransDigm fits the bill, and its new, lower price provides a good entry point:

Recent earnings beat forecasts. Financial institutions are accumulating shares. Sold off today.

Add TransDigm to the Fool's free portfolio tracker, and see whether the company can continue to transform itself into the premier parts supplier to the aerospace industry.

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 this inside information's worth trading on.

Coca-Cola and Microsoft are Motley Fool Inside Value picks. Apple is a Motley Fool Stock Advisor choice. TransDigm Group is a Motley Fool Hidden Gems selection. Coca-Cola and PepsiCo are Motley Fool Income Investor picks. Motley Fool Options has recommended a bull call spread position on Apple, and diagonal call positions on Microsoft and PepsiCo. The Fool has written puts on Apple, and owns shares of Apple, Coca-Cola, Microsoft, and PepsiCo. Try any of our Foolish newsletter services free for 30 days.

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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On March 18, 2011, at 8:04 PM, ConstableOdo wrote:

    From the looks of the way Apple has downturned, insiders must be selling their shares because no one is buying Apple shares despite those lofty target prices that analysts are endlessly pumping up.

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