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!
Below, we highlight a handful of insiders who are making big purchases of their own company's stock in the last 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. We'll then pair 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.
|
Stock
|
Insider, Position
|
Market Value of Transactions
|
CAPS Rating (out of 5)
|
| JPMorgan Chase (NYSE: JPM ) |
David Novak, director |
$5.0 million |
*** |
| American Superconductor (Nasdaq: AMSC ) |
Kevin Douglas, 10% owner |
$8.5 million |
** |
| Corcept Therapeutics (Nasdaq: CORT ) |
Patrick Enright, director |
$2.9 million |
** |
Source: wsj.com and Motley Fool CAPs.
Although following the lead of insiders can be profitable, we still recommend you do your due diligence to determine whether these stocks make a good addition to your own portfolio. This isn't a list of stocks to buy, but just the inside track on companies you might want to check out further.
An investment in the future
As comedian Mel Brooks advised, "It's good to be the king." Or, in the U.S., the next best thing is being a Wall Street banker. From bull market to recession, bailout to bankrupt, the ability of bankers to keep generating huge bonuses for themselves is relentless. Regardless of their complicity in the failure of the economy, they continue to pay themselves well.
According to The Wall Street Journal, executive compensation at publicly traded Wall Street banks hit $135 billion in 2010. JPMorgan Chase, Citigroup, and Goldman Sachs (NYSE: GS ) all repaid their TARP bailout money, so they're no longer required to abide by its restrictions. Not that it mattered anyway. Last summer, pay czar Kenneth Feinberg said 17 bailed-out banks gave their executives "ill-advised" payments, but also said he wasn't going to try to recoup the money.
Despite its participation in the robo-signing mortgage scandal, JPMorgan was able to report a 47% increase in earnings because of fewer bad loans, though they remain a drag on performance. Yet it wasn't foreclosures that were its largest expense. Instead, it was employee compensation. Yet as CAPS member stlbanker notes, an improving economy should help boost next year's bottom line.
As the economy slowly recovers over the next 12 months the financial sector should see a significant bump. Increased opportunities for fee generation should improve. [JPMorgan] is one of the best in class, with solid principals.
Enterprising growth
Even with the big bump American Superconductor enjoyed after reporting surprising earnings growth, its stock is still trading at a big discount to its 52-week high. Yet it's confident that by 2015 it will hit its target of $1 billion in sales and better than 20% operating margins, particularly if superconductors materials and grid products gain traction. That's quite possible.
According to market researchers at TrendForce, the prices of global solar cell modules are expected to fall to just $1.10 per watt, which should pressure prices throughout the industry. Inverter maker Satcon Technology (Nasdaq: SATC ) , which makes utility-scale power inverters, is looking to capitalize on that trend, and American Superconductor can win contracts with its own grid focus.
Highly rated CAPS All-Star member djkumquat thinks the only area of concern might be its reliance upon one customer, Sinovel, for most of its sales: "strong insider buys, nearing bottom, due for rally. of concern: customer base is a narrow moat."
You can follow along by adding the power generation products maker to your watchlist and having all the Foolish news and analysis aggregated for you.
Put up or shut up
Small-cap pharma player Corcept Therapeutics has shown positive results thus far for its Cushing's syndrome treatment Corlux, but the real value in the company may be as an acquisition target. It doesn't have much of a pipeline beyond that single therapy, and Cushing has a rather small treatment population. The Fool's pharma guru Brian Orelli believes GlaxoSmithKline (NYSE: GSK ) or Pfizer (NYSE: PFE ) would make logical partners.
It might be the thought that Corcept decides to go it alone that has the CAPS community feeling rather ambivalent about its potential. Only a little more than half of the All-Stars rating the biotech see it as outperforming the broad market averages.
Add Corcept to the Fool's free portfolio tracker, then head over to the Corcept Therapeutics CAPS page and tell us if you think it has a strong future as a stand-alone small cap.
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.
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