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 company's stock in the last 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

$7.0 million

***

Dell (Nasdaq: DELL  )

Michael Dell, CEO

$150.0 million

*****

Questcor Pharmaceuticals (Nasdaq: QCOR  )

Mitchell Blutt, director

$2.9 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. So this isn't a list of stocks to buy -- just the inside track on companies you might want to check out further.

Right on the mark
Considering that shares of wind-turbine and electrical-components maker American Superconductor haven't gone anywhere but down, you might wonder about the hefty amount of money that 10% owner Kevin Douglas has been pouring into the stock. Last December, we mentioned that he'd dumped almost $6 million into the company's shares, and the stock is down another 16% since then. Throughout 2010, he purchased more than $122 million worth of stock, with $55 million of that total coming since November. He now owns about 14% of the company. That's real commitment, considering the stock is down almost 14% over the past year.

But look for the stock to be on the move soon. A series of company moves has brought China's top three turbine manufacturers onto its client roster, and it will snag General Electric (NYSE: GE  ) in the process, too -- certainly no slouch when it comes the wind business.

Sinovel is still responsible for the vast bulk of its revenues, but it just purchased Finnish permanent-magnet generator The Switch, giving it access to Goldwind, China's second-largest turbine manufacturer. A supply deal with China's third-largest wind-turbine manufacturer, Dongfang Turbine, rounds out the triumvirate.

Importantly, the acquisition of The Switch gives it access to its biggest customer, GE -- which, it's worth noting, is in the middle of a legal brouhaha with its key customer, A-Power Energy Generation Systems (Nasdaq: APWR  ) .

I just closed out my winning underperform rating for American Superconductor on CAPS, and I'll be switching it to outperform, as I now see the company positioning itself for growth. That puts me in agreement with the 85% of the CAPS community that has rated American Superconductor to outperform the broader indexes. Let us know on the American Superconductor CAPS page whether director Douglas is right in thinking the company has the wind at its back.

Profiting at the margins
Dell Chairman Michael Dell is another insider regularly willing to put his money on the line. He's just made another huge purchase of his company's shares, following a $100 million buy back in December. He now personally owns almost 13% of the company's stock, though the company says there are no plans to go private.

With all the hype surrounding the Apple iPad, doomsayers are saying the death of the computer is nigh. I don't go so far as to think tablet computers are a fad, but I so believe their long-term impact is overrated. Michael Dell apparently thinks so too, even if his company has its own tablet entry. Or maybe even because of it.

More than 5,600 CAPS members have rated Dell, making it one of the most popular stocks in the community. And while 30% of those look for the tech leader to underperform the market average, more than 90% of Wall Street says it may yet surprise to the upside. Keep an eye on how Dell stacks up by adding it to your watchlist.

A transforming event
KV Pharmaceuticals
(NYSE: KV-A  ) ignited a firestorm of indignation when it priced its treatment to prevent preterm births at $1,500 a dose, some 100 times higher than the drug-combination doctors were previously prescribing. Maybe it was just following the script set down by Questcor Pharmaceuticals, which in 2007 raised the price of Acthar, a baby-spasm therapy, to $50,000 to $100,000 -- 10 times more than it previously cost.

CAPS member JuanPeter cites an article appearing last month in The Wall Street Journal that highlighted the wave of rebates to Medicaid patients Questcor will be facing as a result of Obamacare's passage.

The pharmaceutical has been enjoying a wave of rising growth, however, and 91% of CAPS members rating Questcor think it can go on to beat the Street. Add Questcor to the Fool's free portfolio tracker and give us a dose of your thinking on its prospects at the Questcor Pharmaceuticals CAPS page.

On the inside track
Following the insiders can be a path to profits, but it pays to start your own research on these stocks at 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.

The Motley Fool has written puts on and owns shares of Apple, and Motley Fool Options has recommended a bull call spread position on Apple, which is also a Motley Fool Stock Advisor selection. 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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  • Report this Comment On March 29, 2011, at 3:03 PM, aldousworp wrote:

    I think Kevin Douglas is right on AMSC. However he doesn't show up on AMSC's directors list. He is listed in the insiders list as a 10% owner.

    My top three holdings are QCOM, AMSC, and Berkshire Hathway. Not always in that order since AMSC moves up and down so much.

  • Report this Comment On April 05, 2011, at 9:31 PM, JAVEROA wrote:

    Motley Fool articles on the importance of positive cash flow, accounts receivable... are fantastic.

    What I am wondering is how come you did not see this fallout coming (Negative outlook on 05 April ;after hours PPS down 40%)?

    Afterall, AMSC's main customer is Sinovel and has not been paying for quite a while now!! And it is not as if they have dozens of clients, basically 2 or maybe 3).

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