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 8/29/06

Total value of stock purchased

52-week change

Ameristar Casinos (Nasdaq: ASCA  )

$20.77

$986,884

(11%)

BlueLinx Holdings (NYSE: BXC  )

$9.99

$101,107

1%

Pegasus Wireless (Nasdaq: PGWC  )

$5.31

$0

(18%)

PoolCorp (Nasdaq: POOL  )

$36.93

$179,940

3%

Wabash National (NYSE: WNC  )

$13.05

$253,395

(37%)

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

A BlueLinx in the chain
Commonly held investing wisdom says that stocks trading at or below book value -- otherwise known as a rough approximation of corporate net worth -- are cheap. There's a good reason for this; many low price-to-book stocks are cheap. That's why legendary investors such as Benjamin Graham paid attention to the ratio when seeking winners.

But a low price-to-book is meaningless without further information, according to NYU professor Aswath Damodaran, author of Investment Fables. His book pierces the book value myth by revealing that the best bargains are low price-to-book stocks that boast above-average returns on equity.

And that's what has me interested in BlueLinx this week. BlueLinx is a building supply wholesaler. If you're thinking that's not exactly the best business to be in at the moment, you're right. Revenue has declined over the trailing 12 months, while BlueLinx's book value has cratered. The shares trade for roughly 1.5 times tangible book value as I write.

But is the business really that bad? Not at first blush. Return on equity improved by 8% from fiscal 2004 to fiscal 2005 and has remained stable at roughly 27% over the trailing 12 months. Plus, BlueLinx trades for roughly half the earnings multiple of the wholesale building materials industry, according to Yahoo! Finance.

So, what gives? The problem may be debt. While leverage can substantially aid return on equity over the short term, it can cause trouble if total debt vastly exceeds shareholder equity. That's the case here: BlueLinx carries 3.6 times more debt on its books than equity.

CEO Stephen Macadam appears to think that's manageable. On Monday, he upped his direct holdings in the company by 16% when he purchased 9,915 shares. A check of the historical data at Capital IQ may explain his confidence. BlueLinx has a history of producing excellent cash flow, especially in the second half of the fiscal year. Color me intrigued enough to place this stock in my to-be-researched pile.

Time for a dip in the POOL?
Fellow Fool Bill Mann has lamented missing Pool Corp., but if insider buying is any indication, there's still more opportunity to be had. Since June, four different insiders have snapped up shares. The latest to do so was Chairman Wilson Sexton. He purchased 5,000 shares on Friday.

What's the rationale? It may be growth. The Street is expecting a lot of it -- 18% annually over the next five years. If Pool can keep that pace -- please understand that such projections are never assured -- today's price-to-earnings-to-growth, or PEG, ratio of 1.1 will look very reasonable, if not cheap. Onto the watch list it goes.

Pegasus still not flying
When is an insider purchase not really an insider purchase? When Pegasus Wireless is involved. Don't get me wrong; I'm not here to pile on. Foolish friend Seth Jayson already revealed the numerous problems facing this company, and I've nothing more to add. I simply find this week's Form 4s both amusing and instructive.

From Friday through Monday, six different insiders appeared to buy shares, including CEO Jasper Knabb, who acquired 132,240 stubs. But Knabb didn't spend a dime, and neither did any of his five colleagues. How do I know? I read the fine print, Fool.

Take this filing from director William Horn. The light green footnote makes clear the arrangement: "Shares issued as Board of Directors compensation in lieu of cash payment."

Neither of the initial filings for Knabb or Chief Financial Officer Stephen Durland featured the same footnote. But that changed on Monday, when new documents were issued. Knabb's revised Form 4 may be found here, while Durland's updated filing is here. The lesson? Take time to read footnotes; they're there for a good reason.

That's all for this week. 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. Get the skinny on all of the stocks in his portfolio by checking Tim's Foolprofile. Ameristar is a Motley Fool Hidden Gems pick. The Motley Fool'sdisclosure policyis always in.


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