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 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. 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.
Market Value of Transactions
CAPS Rating (out of 5)
|American Superconductor (Nasdaq: AMSC )||Kevin Douglas, 10% owner||$50.1 million||***|
|General Maritime (NYSE: GMR )||Peter Georgiopoulos, director||$1.8 million||*****|
|Legg Mason (NYSE: LM )||Norman Peltz, director||$6.1 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.
Right on the mark
If this were poker, Kevin Douglas might be going all-in. The American Superconductor director has already bought tens of millions of dollars worth of company stock, and even bad news won't deter his hot and heavy investing streak.
When the wind power electrical components maker received the devastating news that its biggest customer didn't want to buy anymore, American Superconductors' stock plummeted. As the third-largest turbine manufacturer in the world (and the biggest in China), Sinovel's decision to work down its inventory has broad implications not only for American Superconductor, but also for the whole wind power industry. It confirms the weakness in the earnings reports of inverter makers Power-One (Nasdaq: PWER ) and Satcon Technology (Nasdaq: SATC ) . American Superconductor had surprised the market with better-than-expected earnings just two months ago, but that success now seems built upon phantom demand.
Back in 2009, we warned Fools about the dangers Sinovel posed to American Superconductor. But the latter company's stock still doubled in price that year, and maintained lofty levels for more than a year afterward, suggesting that investors just couldn't contain their exuberant hopes. Now, having committed more than $172 million over the past year to American Semiconductor, Kevin Douglas seems left with little alternative than to double down and hope his bet eventually pays off.
The company is in the sweet spot. Analysts expect this company to grow at 35% over the next five years. It looks like the company will have two bad quarters, during which time, it has a huge war chest of cash, to bide its time, after which it can resume growing.
Let us know on the American Superconductor CAPS page whether the Sinovel slump is just a hiccup, or a full-on convulsion.
Profiting at the margins
Investors in General Maritime, the second-biggest oil tanker fleet operator behind Frontline (NYSE: FRO ) , probably have a certain sinking feeling. The company was forced to sell off parts of its fleet to pay down its debt, then got swamped by a big, dilutive share offering. When the stock fell on the news, director Georgiopoulos bought in. So did a number of other executives, including several directors, the CFO, and a senior VP of the company.
With the stock down 70% over the past year, it's tempting to join them, but there seem to be a lot of risks here. Analysts are concerned about the company's liquidity. In its weakened state, it could lose out to rivals like Frontline or Overseas Shipholding Group.
All-Star smith972 considers General Maritime a general shipwreck right now, but if its efforts to navigate the shoals of debt succeed, the company could be sailing the high seas for some time.
Bottom fishing here. [General Maritime] is ship wrecked but if it can repair itself, it will pay off big time. I will be watching to consider a real position.
Keep watch from the bow by adding General Maritime to your watchlist, and see whether it's able to bring the big ship around.
A transforming event
Activist investor Norman Peltz's recent big purchase of Legg Mason stock is only his latest investment in the money management firm. The investing acumen of Legg Mason's Bill Miller no doubt attracts Peltz, and perhaps they're in sync on the sectors the famed investor is targeting: energy and health care. In particular, Miller has pronounced Microsoft (Nasdaq: MSFT ) simply "too cheap to ignore."
With more than 92% of CAPS members rating the money manager to outperform the broad market averages, it seems their thoughts line up with Peltz and Miller's. Add Legg Mason to the Fool's free portfolio tracker and invest your thoughts on the Legg Mason 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 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.