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 have made big purchases of their companies' 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, buying shares at market prices. We'll then pair that information with insights from the members of Motley Fool CAPS to see if they agree about the stocks' upside.
Market Value of Transactions
|Hot Topic (Nasdaq: HOTT )||Steven Becker, director||$4.3 million||*|
|Howard Hughes (NYSE: HHC )||R. Sellers, director||$0.3 million||****|
|Six Flags Entertainment (NYSE: SIX )||Usman Nabi, director||$52.9 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. 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
The future of teen retailer Hot Topic looks as dark and bleak as the emo-goth segment of the teen population it targets. Despite the jump in its shares this past month -- the stock is almost 25% higher -- there's not much to recommend an investment here. The chain said comps fell 5% in March (yay! analysts were expecting a 6.2% decline), marking the 23rd consecutive month of falling same-store sales. According to the Fool's Alyce Lomax, Hot Topic hasn't had any appreciable increase in annual comps growth since 2007.
Maybe the insider buying was a result of management changes at the teen retailer. The CEO is out and the merchandising head followed her out the door. It's also closing down its folly, the music downloading service Shockhound.com.
Sure, management changes can shake things up, but that's no guarantee of success. Sales still hemorrhaged when fellow teen retailer Pacific Sunwear (Nasdaq: PSUN ) brought in a new executive who subsequently shut down the company's dalliance with frivolity -- an urban, hip-hop-wear concept that, coming from a surf-and-skate shop, lacked any street cred.
Of course, that was going into the teeth of the recession. Hot Topic is pursuing this course coming out of it, during a time when retailers are experiencing better sales. It's still unable to generate traffic.
CAPS members barely think it can succeed, with just 54% of the 378 members rating it marking it to outperform the market indexes. But you can get all emo in the comments section below or on the Hot Topic CAPS page about whether the teen retailer can turn it around.
Profiting at the margins
The performance so far by real estate development specialist Howard Hughes has been as successful as the maiden flight of the Spruce Goose: It got off the ground once but never took flight again.
The REIT took flight after its November IPO -- having been spun off from General Growth Properties (NYSE: GGP ) -- but after rallying to almost $74 a share, the stock has fallen 17%. But unlike the flying wooden boat, Howard Hughes has a good chance of taking to the air again. It's just that trying to value a property such as its South Street Seaport in New York isn't easy. Moreover, it owns development communities and commercial real estate in Las Vegas. While commercial real estate has avoided an implosion thus far, Nevada isn't a hotbed of growth just yet.
Yet CAPS member gleedy thinks the unique value of its assets will find an appropriate value and he's marked it to outperform. Nineteen All-Star players hold a similar high opinion of its prospects. Climb in the cockpit by adding Howard Hughes to your watchlist to see if it's able to gain altitude again.
A transforming event
With the stock of theme park operator Six Flags Entertainment running 120% higher than its annual low point, it really does seem that more flags equals more fun, at least for investors. Like Cedar Fair (NYSE: FUN ) and Disney (NYSE: DIS ) , the success of running resort attractions depends a lot on how the economy is faring.
Despite the many risks still confronting the economy, consumers are feeling better about things and amusement parks have been the beneficiary. Both Six Flags and Cedar Fair saw record attendance levels in 2010, bringing in 24.3 million and 22.8 million visitors, respectively.
CAPS member spawn170 says that Six Flags' longevity makes it strong, and with the summer just ahead, it should continue to do well:
This amusement park may be no Disney World or Universal Studios, but it has consistently been a market player for … decades. The company garbles up smaller parks and incorporates them into its franchise. Summer is coming soon and the amusement park season starts with a lot of new rides and attractions and parents itching to unload their kids for a few hours.
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.