Generally speaking, investors are a pretty emotional bunch, and can be easily swayed by popular opinion -- even when it runs counter to logic, or their better judgment. Being subject to the whims of the crowd means a good deal of market overreaction, even to events that only have a short-term impact.
Most investors have a hard time seeing beyond the immediate, so they miss out on the opportunities that lie just over the horizon. On the bright side, those with a view to the future can profit off this short-sightedness by finding beaten-up companies trading below their true value that have good long-term prospects.
All of the stocks mentioned in this article have seen sharp losses over recent sessions, and some might say these companies have been oversold.
Short of a crystal ball, there's no surefire way to know if this short-term weakness presents a long-term opportunity -- but paying attention to the trades of the insiders may offer some hints.
Insider buys are by nature long-term investments -- regulations prohibit company management from buying and selling stocks over short time intervals, so they're forced to hold their positions for extended periods of time. Given that they know more about their firm than anyone else, their willingness to hang on to its stock attests to the strength of its prospects.
Insiders are optimistic about the long-term outlook of the following list of oversold stocks. But remember, buying oversold stocks isn't foolproof, and insiders don't always get it right. So use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. Webster Financial Corp (NYSE: WBS ) : Webster Financial Corporation is a bank holding and financial holding company. At the end of last year, the company announced a common stock offering, which has been a drag on the share price.
Key Stats: Insiders purchased an average of 1,814,786 shares per year over the last two years (representing 2.08% of 87.16M shares outstanding).
2. Morgan Stanley (NYSE: MS ) : One of the biggest firms on Wall Street. Xchanging Plc (a major investment firm) recently turned bullish on the company's stock and announced that it had bought 11,988,851 shares (representing 5.01% of voting rights).
Key Stats: Insiders purchased an average of 8,183,670 shares per year over the last two years (representing 0.53% of 1.55B shares outstanding).
3. Scientific Games Corporation (Nasdaq: SGMS ) : The company is a global supplier of products and services to lotteries, and a provider of gaming technology and content to other gaming operators worldwide. At the end of last year, the company announced that A. Lorne Weil, the Company's Chairman, will also become Chief Executive Officer.
Key Stats: Insiders purchased an average of 355,714 shares per year over the last two years (representing 0.39% of 91.98M shares outstanding).
4. Argo Group International Holdings (Nasdaq: AGII ) : The company is an international underwriter of specialty insurance and reinsurance products in the property and casualty market. They recently announced that their Board of Directors authorized a buyback program of $150 million (representing about 17% of the company's market cap).
Key Stats: Insiders purchased an average of 18,447 shares per year over the last two years (representing 0.07% of 27.45M shares outstanding).
5. Flagstar Bancorp (NYSE: FBC ) : Flagstar Bancorp is a savings and loan holding company.
Key Stats: Insiders purchased an average of 166,500 shares per year over the last two years (representing 0.03% of 553.62M shares outstanding).
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.
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