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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!
Today, I've highlighted a handful of insiders who have made big purchases of their own company's stock 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, buying shares at market prices. I then paired that information with insights from the members of Motley Fool CAPS to see if they think the stock has the same prospects the insiders do.
Market Value of Transactions
CAPS Rating (out of 5)
|Darden Restaurants (NYSE: DRI )||William Lewis Jr., director||$0.9 million||**|
|Entegris (Nasdaq: ENTG )||GMT Capital, 10% owner||$0.9 million||****|
|ViroPharma (Nasdaq: VPHM )||Baker Biotech Capital, 10% owner||$16.6 million||****|
Although following the lead of insiders can be profitable, we still recommend you do further due diligence to determine whether these stocks ought to be sold from your own portfolio -- or would make a good addition! So this isn't a list of stocks to sell or buy, but just the inside track on companies you might want to check out further.
Director William Lewis wasn't the only one who apparently liked Darden Restaurants' third-quarter results: The markets have bid up the restaurateur's stock 6.5% in the two weeks since reporting.
The owner of the Olive Garden, Red Lobster, and Longhorn Steakhouse chains posted earnings that were ahead of analyst expectations but down from the year-ago period.
The market researchers at NPD Group reported last month that the restaurant industry's recovery came to a halt, reversing a three-quarter trend that began last year as restaurant visits fell 0.4% compared to the year-ago period. High unemployment rates, elevated energy prices, and low consumer confidence cause people to be less willing to dine out.
Yet analysts think Darden will fare better than casual dining chains like Brinker International, the operator of Chili's, and Applebee's owner DineEquity (NYSE: DIN ) , or even high-end eateries like Cheesecake Factory (Nasdaq: CAKE ) . The Olive Garden is seeing strong growth and has experienced high same-store sales.
CAPS member SigmaSwan is impressed with the chain's ability to navigate its way through the recession.
I'm impressed DRI navigated the recession so well. I like the yield and the broad portfolio of brands. I think cost inflation could moderate significantly enough to boost margins next year. Mostly, just interested in following this one for a while. Outperform.
Let us know in the comments section below or on the Darden Restaurants CAPS page whether you think investors will continue to gorge themselves on the stock. Also add it to your watchlist to be notified of the latest developments.
Chipping away at recovery
The analysts at GMT Capital apparently spent the weekend poring over the numbers of Entegris, a semiconductor materials producer, as it dropped almost $1 million into the stock on Monday, paying $7.49 each for 120,000 shares, a pittance compared to the 13.3 million shares it already owns. Rather than a new endorsement of Entegris' future, this suggests a continuing belief in the company being able to grow.
The industry needs some boosting. Chip maker ASML believes the chip sector is due for a slowdown, with 2012 being a "difficult year," confirmed by elevated chip inventories, according to the market researchers at IHS. With Intel (Nasdaq: INTC ) expected to report earnings at the low end of its guidance next week, GMT Capital must be thinking Entegris' own earnings report later in the month won't follow suit.
All but one of the 31 CAPS All-Stars rating Entegris believe it will ultimately outperform the broad market averages. Add Entegris to your watchlist and let us know in the comments section below what you calculate the risk to your portfolio will be.
Does the agreement with Halozyme Therapeutics (Nasdaq: HALO ) justify the $16 million investment in ViroPharma? Biotech Capital apparently does. Cinryze has been experiencing rising patient demand, with sales jumping 55% in the latest quarter, and now accounts for 57% of ViroPharma's sales (Vancocin sales continue to slide).
The Halozyme deal will see additional investment in Cinryze, and the biotech was able to increase its guidance for what it expects the therapy to do. European adoption and expanded indications are all part of what's to come.
That could explain why 97% of the CAPS members rating ViroPharma believe it will indeed go on to beat the Street. Add the biotech to the Fool's free portfolio tracker and tell us on the ViroPharma CAPS page whether you think this is a good place to sink more money.