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 up!

Today, I've highlighted a handful of insiders who have made big purchases of their own companies' stocks in the past week. These aren't executives getting big chunks of shares from option grants. Rather, they're insiders putting their own money on the line and buying shares at market prices. I then paired 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)

Cost Plus (Nasdaq: CPWM  )

Willem Mesdag, director

$2.8 million

*

Marshall & Ilsley (NYSE: MI  )

Mark Furlong, CEO

$1.7 million

***

Overseas Shipholding Group (NYSE: OSG  )

Oudi Recanati, director

$3.5 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 ought to be sold from your own portfolio -- or whether they'd make a good addition! This isn't a list of stocks to sell or buy, just the inside track on companies you might want to check out further.

Hurry up and wait
Home-goods specialty retailer Cost Plus was able to narrow its losses last quarter as revenues rose, allowing it to raise guidance for the rest of the year. That's similar to the experience of both Pier 1 Imports (NYSE: PIR  ) and Williams-Sonoma, so when Bed Bath & Beyond (NYSE: BBBY  ) reports later this month, we'll probably see the trend continue.

Cost Plus's stock price is comparably valued on a trailing basis compared with its rivals, but when we look at how analysts expect its earnings to grow, we see that Cost Plus offers a significant discount. However, with its enterprise value-to-free cash flow ratio of just 14, the disparity isn't so apparent. Pier 1 trades at a ratio of 8, Williams-Sonoma, 12, and Bed Bath & Beyond 14. Indeed, with Pier 1 offering a market multiple of 12 times next year's earnings, it may be the most attractive of the bunch.

But director Mesdag has been accumulating shares steadily over the past week, suggesting that the 28% decline from Cost Plus' 52-week high might be overdone. CAPS members, though, are almost evenly divided over its expected performance, and earlier this year All-Star RXDOC73 thought it made for an attractive buyout target.

The heavy insider buying is fueling that speculation again, but you can let us know whether you think that's still a possibility by speaking your mind on the Cost Plus CAPS page.

Revenge of the nerds
Considering the seemingly worsening condition at Marshall & Ilsley, you'd have to think CEO Furlong was foolish for buying up even more shares. Even though it released more of its reserves for loan and lease losses back onto the financial statement, losses still widened at the financial institution, its 10th quarterly loss in a row. Revenues and profits fell in the quarter, and deposits dropped, too.

What's to like at the bank? Well, its credit quality improved. Nonperforming loans fell 19%, and stage delinquencies were reduced 17%, accounting for M&I's ability to reduce its reserves. It's taking a more proactive position on its own credit issues, putting it in a better financial position to be acquired by Bank of Montreal (NYSE: BMO  ) . A year ago, Bank of Montreal was the best-performing Canadian bank stocks and was in the midst of a spending frenzy, buying up U.S. financial assets. That situation hasn't changed much in the ensuing 12 months.

With almost 80% of CAPS members rating Marshall & Ilsley to outperform the broad market averages, it seems they were expecting it to continue improving its investment profile. Let us know on the M&I CAPS page or the Bank of Montreal CAPS page how much M&I will help its new patron to the north.

A transforming event
Not only is director Recanati buying more shares of oil-tanker fleet operator Overseas Shipholding Group, but fellow director Charles Fribourg is dipping back into the well, too. Earlier this year, Fribourg bought several hundred thousand dollars' worth of shares when the stock was trading around $28 a stub. The stock has been slightly discounted since then, and he's scooping up another tranche worth $1.6 million.

Overseas Shipholding sails at the whim of the spot rate market, since 80% of its fleet is exposed to that market. When rates fell last year by more than three quarters of what they had been getting, Overseas was swamped. It's hurt other shippers, too, with a preponderance of exposure to the spot market. General Maritime (NYSE: GMR  ) , for example, with 51% of its voyage days in the spot market, saw losses widen last quarter as rates continued to fall, down by 24% from the year-ago period.

The dividend yields 6.8%, though, and CAPS member alcear sees Overseas Shipholding making a comeback.

Check out that dividend! Earnings should come back as OPEC increases production. Just hope I'm not catching a falling knife

Add your thoughts on the becalmed Overseas Shipholding Group CAPS page and follow along on its progress by adding the stock to the Fool's free portfolio tracker.

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 it's worth trading on this inside information.

The Motley Fool owns shares of General Maritime. Motley Fool newsletter services have recommended buying shares of Bed Bath & Beyond. 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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 13, 2011, at 10:37 PM, jekoslosky wrote:

    Insider buying is one of the main reasons I'm still hanging on to my Hasbro stock after a really nice run (nearly a double off my original position.) CEO bought close to $500,000 in shares at a price lower than it's selling right now. Gotta like that.

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