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 two 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)
|Cracker Barrel (Nasdaq: CBRL )||Sardar Biglari, 10% owner||$4.3 million||***|
|NII Holdings (Nasdaq: NIHD )||Peter Foyo, president, Nextel Mexico division||$0.7 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.
Eat it up
If you own the whole company, they can't keep you off the board, right? Sardar Biglari, the biggest shareholder of Cracker Barrel, has been attempting to gain control of the restaurant chain and a seat on its board of directors. In response to his maneuvers, Cracker Barrel's board has rebuffed his overtures and instituted a poison pill defense to keep him from acquiring a larger stake. Having someone from a competing chain of family restaurants -- Biglari operates Western Sizzlin and Steak n Shake through Biglari Holdings (NYSE: BH ) -- sitting on the board would serve up conflict of interest.
Shareholders seem to agree, but apparently aren't completely averse to having someone buy up the heretofore struggling chain. While they reelected Cracker Barrel's board nominees by wide margins, thus rejecting a seat for Biglari, they also voted down the poison pill defense. Now anyone can acquire a big enough stake to take over the company.
Right now that someone is Biglari, who's since been buying up large tranches of shares and after the latest round owns more than 14% of the outstanding stock. If he's ultimately successful, revenge against those who thwarted his efforts may indeed be a dish best served cold, and Motley Fool blogger Brian Gorban believes Biglari has proven his acumen with his takeover of Friendly Ice Cream restaurants.
Right now 85% of the CAPS members rating Cracker Barrel think it will go on to beat the broad market indexes, either with or without Mr. Biglari's participation, but add it to your watchlist, then dish on the Cracker Barrel CAPS page about whether you think the takeover attempt is justified.
We hear more about telecom activity in China than in Latin America, but the latter is providing an exciting look into how the markets will play out and who the winners will be. NII Holdings doesn't seem to be one of them.
America Movil is the largest wireless carrier in Mexico, battling Telefonica (NYSE: TEF ) and Televisa for space. NII, marketing under Sprint's (NYSE: S ) Nextel brand, has just a small piece of the pie south of the border; 50% of its revenues come from Brazil, but it has been foundering there nonetheless. Last-quarter growth in net new customer additions lagged what it achieved a year ago, while the costs to acquire them soared.
Part of the problem may be the delay in rolling out a 3G network, which it says won't happen until the middle of this year in Brazil, Mexico, and Chile. Both America Movil and Telefonica have already completed their rollouts, and Telefonica already commands a majority share in Brazil, making a comeback by NII all the more difficult.
Last October, CAPS member veveyhedge suggested NII was a better takeover target than growth-stock candidate, and that may still be the path of least resistance. Add NII Holdings to the Fool's free portfolio tracker and let us know in the comments section below if you think the wireless carrier will ever connect with customers again.
On the inside track
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