Who's Buying Now?

It's Tuesday, and that means it's time to check the most interesting insider purchases from the last week. After reading through numerous filings using insider tracking tool Form 4 Oracle, here are my top five:

The week's buying

Company

Closing price 12/30/05

Total value of stock purchased

52-week change

Cost Plus (Nasdaq: CPWM  )

$17.15

$10,613,079

- 46.5%

EnterpriseProducts Partners (NYSE: EPD  )

$24.01

$7,638,565

- 7%*

Goody'sFamily Clothing (Nasdaq: GDYS  )

$9.59

$311,450,892

+ 8.5%*

Midway Games (NYSE: MWY  )

$18.97

$1,145,052

+ 80.5%

Smith & Wesson (NYSE: SWB  )

$3.93

$213,383

+ 128%



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

*Returns adjusted to reflect the effect of dividends

Oh, Goody's
First up is GMM Capital, a Manhattan-based private equity firm that tends to participate in management buyouts and other restructurings. Its specialty, however, appears to be retail. Take a look at these filings with the Securities and Exchange Commission. Among GMM's holdings are clothing manufacturer Delta Galil Industries and resurgent hipster Wet Seal (Nasdaq: WTSLA  ) .

Add to that Goody's Family Clothing, a retailer of affordable apparel based in Knoxville, Tenn. Last week, the firm completed a tender offer for Goody's, acquiring the company for a little less than $312 million, or $9.60 per share. The deal ends what had been a contentious battle with Sun Capital Partners for control of Goody's.

Indeed, in early October, Sun Capital had all but closed a merger deal for $8 per stub. That set off complaints from GMM Capital and affiliate Prentice Capital Management, which had days before disclosed their intent to offer $8.50 to $9 per stub for Goody's. The offer was ultimately raised to $9.60 and, on Tuesday, 95.4% of the outstanding shares had been tendered to GMM.

No doubt, this isn't your typical insider buying story. After all, Goody's is now effectively a private firm. And we've no idea exactly what GMM Capital has planned for Goody's 360-plus locations. Still, the tale offers two valuable investing lessons.

The first? Not all insiders are created equal. And not all insider buying is meaningful. Yet it's easy to be sucked in by high levels of insider ownership. Just ask Tom Gardner. Our head honcho for Motley Fool Hidden Gems first singled out Goody's in the December 2003 issue at -- wait for it -- $9.68 per stub. His reasoning? An ample stream of owner earnings, accelerating sales and income, and, of course, insider ownership north of 40%.

Eight months later, the business had begun to deteriorate. In the August 2004 update, after watching the stock crater, Tom wrote that "ongoing threats to (Goody's) market share have me thinking sell." Still, he had to admit that it "would be tough not to buy around $5." It never happened, but the shares did fall to as low as $6.66 per stub. Buying even at $7 would have resulted in a 37% gain. And that brings us to the second lesson: Every business, no matter how bad, can become cheap. Goody's wasn't, then was, and is no longer. That's just the way it often is in the stock market. Now whether you'd necessarily want to buy a poor business on the cheap is another story.

Spending for Cost Plus
Next up is another manager I've recently profiled in these digital pages, Glenn Krevlin of Glenhill Capital Management. Last week, he bought two separate lots of 200,000 and 450,000 shares of retailer Cost Plus for a little more than $10 million.

Krevlin has a history of very profitable investments and a record of growing assets under management enormously. Neither happens by accident. So what's he see in Cost Plus, a rival to strugglingPier 1 (NYSE: PIR  ) ? It could be very conservative management guidance that attracts him. Or the firm's 16.8 price-to-earnings ratio, which is a discount to competitors, the retailing industry, and the broader market. Or that it's within spitting distance of tangible book value but with far better prospects for a turnaround than Pier 1.

But my personal guess is ... the company. No, not the company, but the company. Other insiders have been buying right alongside Krevlin, including director Kim Robbins and CEO Barry Feld. You'd be hard-pressed to find a more bullish sign than that.

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

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Fool contributor Tim Beyers usually 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's in his portfolio by checking Tim's Fool profile. The Motley Fool has a disclosure policy.


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