Who's Buying Now?

It's a new week, which means it's time to check the most interesting insider purchases. After reading through numerous filings using insider tracking tool Form 4 Oracle, here are my top five from the past seven days:

The week's buying

Company

Closing price 5/23/06

Total value of stock purchased

52-week change

Chiquita Brands (NYSE: CQB  )

$14.31

$371,286

(50%)

Hollinger International (NYSE: HLR  )

$7.18

$252,335

(23%)

SeaBright Insurance Holdings (Nasdaq: SEAB  )

$15.31

$70,117

46%

THQ Inc. (Nasdaq: THQI  )

$21.72

$23,000

16%

Trump Entertainment (Nasdaq: TRMP  )

$20.66

$137,399

5%

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle, SEC filings

Hollinger: An inky value?
As much as we tend to mock the roller coaster nature of Rule Breaker investing in these digital pages, it's value investing that scares me most. Here's why: Cheap stocks, by definition, have problems. It's rarely easy to differentiate between temporary blips and permanent faults. Exposing your portfolio to such uncertainty can be frightening. At least, that's how it is for me.

Insider buying can be reassuring in such situations. Take Hollinger, for example. The owner of dozens of global newspapers has been involved in numerous scandals in recent years, including a scheme that involved illicit payments to former chairman Conrad Black and circulation pumping at TheChicago Sun-Times. It could take years for the scars to finally fade.

Fortunately, new chairman and CEO Gordon A. Paris, who helped lead the investigation into the company's governance practices under Black, has a plan. It involves shedding assets, selling investments, and buying back up to $20 million more in Hollinger shares, according to The Wall Street Journal. (The company recently completed a $50 million buyback.)

Can it work? I've no idea. Certainly, litigation involving Black and other former Hollinger executives, as well as class action suits still pending, could continue to hurt the share price. But it's reassuring to see Paris and three other executives betting real money on their turnaround plan. Paris, for example, bought 15,000 shares last Friday. All told, the purchases cost more than $250,000.

A not-so-tasty balance sheet
How do you measure a value? There are numerous metrics available. One of the more popular during the days of legendary investor Benjamin Graham was book value, which fellow Fool Chuck Saletta did a nice job of explaining here.

Book value, put simply, is the net worth of a company. It is calculated by subtracting the total liabilities from the total assets listed on the balance sheet. The result -- hopefully, a positive number -- is typically referred to as stockholder's equity, which is also known as book value. With me so far? Great!

Rarely, book value exceeds the market value -- or market cap -- of a stock. When that occurs, the shares are said to be trading on the cheap. In layman's terms, it's as if you went to a pawnshop, found a rare antique, and bought it for much less than its stated worth to a collector. Too bad it isn't always this simple with stocks.

Book value, you see, can be manipulated. It's all in how the company defines assets and liabilities. And that brings me to Chiquita. The stock appears to be super cheap, trading for just 60% of book value, according to Yahoo! Finance. Mix in two recent insider purchases, including this big buy made by CEO Fernando Aguirre, and I start to salivate.

But again, the story isn't that simple. A read of the most recent annual report shows that, as of December, more than 40% of Chiquita's assets were intangible, and a good portion of those were created through purchasing the Fresh Express fresh-cut fruit business a year ago. That would be fine if Chiquita were bolstering an already-profitable operation, but it isn't. Instead, the company has a record of losses in the fresh-cut fruit industry. It's therefore a huge risk to count its intangibles as real assets. And without them, Chiquita's stockholder's equity turns negative. Whoops.

That's all for now. See you back here next Wednesday when we dig through more insider deals in search of the next home run stock.

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Fool contributorTim Beyersusually favors two scoops of ice cream over the inside scoop. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.


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