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)
|Cathay General Bancorp (Nasdaq: CATY )
||Anthony Tang, executive VP
|Federal-Mogul (Nasdaq: FDML )
||Carl Icahn, chairman
|Overstock.com (Nasdaq: OSTK )
||Francis Chou, 10% owner
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.
You can bank on it
We've heard a lot about banks still not willing to lend, and while there's a general freeze still on, it's thawing here and there. You just have to look at individual circumstances to see where loan growth is happening, and one place you'd find is Cathay General Bancorp, which reported last month that its commercial loan business grew 11% in the quarter and was up 26% for the year. Management expects commercial loans to continue on this upward trajectory, comprising an ever-larger percentage of its loan portfolio.
Yet, like other regional banking concerns Huntington Bancshares (Nasdaq: HBAN ) and Synovus Financial (NYSE: SNV ) , the Pacific regional bank still has to contend with Federal Reserve policy that upends its progress. "Operation Twist" is keeping interest rates artificially low and encouraging mortgage holders to refinance. The prepayments ate into net interest income, though unlike Huntington, Cathay saw its levels rise.
CAPS member stpatrick31782 noted the buying that Cathay's EVP was performing, and since his purchases, shares have dropped -- meaning you can purchase them for less than he did. Let us know in the comments section below or on the Cathay General Bancorp CAPS page if insiders will continue to gorge themselves on the stock. Also add it to your watchlist to be notified of the latest developments.
Auto parts supplier Federal-Mogul is another stock you can buy cheaper now than when the insider did. Carl Icahn has been regularly adding to his holdings of the powertrain and safety technologies specialist since the end of the summer, purchasing more than $14.7 million worth of stock. But shares are down 25% over the past month and almost 10% lower over the last week.
The parts supplier posted a mixed bag of results recently that saw revenues come in ahead of expectations, but profits fell short. Europe accounts for 42% of its sales, followed closely by the U.S. and Canada at 38%. The rest of the world makes up the other fifth of its sales.
Icahn tried to maximize the value he had invested in the company by searching out strategic alternatives, which typically means selling the company. The volatile marketplace made financing difficult and it eventually gave up, no doubt leading Icahn to try the next best thing and invest more in the company.
Visteon (NYSE: VC ) is also being considered for a breakup or sale, only recently have emerged from bankruptcy protection. With valuable assets in the burgeoning South Korean auto market, it could be worth more separately than together.
A few months ago, CAPS member Bryan122 seemingly noticed Icahn's renewed interest in Federal-Mogul, but being an auto parts supplier in this market means the broader CAPS community has some significant doubts. Some 40% of those rating it think it will underperform the broad indexes. Add Federal-Mogul to your watchlist and let us know in the comments section below if you think investors will drive off with this stock.
What is it about companies wanting to mess with their established brands? Faster than you can say "Qwikster," online closeout specialist Overstock.com abandoned its effort to rebrand the company as O.co.
To market watchers, Overstock is already something of a flake brand because of the many bizarre public pronouncements of its CEO, but customers of its website don't really know or probably don't care if Patrick Byrne wears tinfoil hats so long as they get a good price. So why he'd want to alienate them as well by changing his company's name is beyond reason, unless you just want to chalk it up to another odd move by an odd company.
Netflix (Nasdaq: NFLX ) did the same thing when it thought it would be a good idea to change the name of its movie-by-mail rental business, something that was solidified in the consumer consciousness. Like Overstock, it beat a hasty retreat when the monumental absurdity became clear even to those occupying the corner offices.
But Netflix is no Overstock, and while substantial shareholder value has been trampled in the weeks following the news, the online discounter has a much longer history of wreaking havoc with corporate valuations. That could be why less than a third of the more than 1,000 CAPS members rating Overstock think it will beat the Street.
Add the closeout specialist to the Fool's free portfolio tracker and tell us on the Overstock.com CAPS page which side you come down on.
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.