Who's Buying Now?

It's time to check out some interesting insider purchases, though today's column offers a twist. You see, only three stocks made the cut this week, two of which I've covered in previous articles:

The week's buying

Company

Closing price 10/17/06

Total value of stock purchased

52-week change

Cantel Medical (NYSE: CMN  )

$13.24

$177,784

(28%)

NeoPharm (Nasdaq: NEOL  )

$7.79

$113,103

(17%)

Star Buffet (Nasdaq: STRZ  )

$8.17

$31,600

13%

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

What's a bullish buy?
So instead of rehashing a story you've already heard, I thought I'd spend just a little time explaining the three things I look for when scouring for meaningful insider purchases:

  • Net buying: Some stocks experience a short burst of buying in the midst of a major insider sell-off. That's what soured me on Best Buy (NYSE: BBY  ) stock, of which director Ronald James purchased $56,000 last week. His buying was easily outweighed by more than $153 million in net insider selling over the previous 52 weeks, according to Form 4 Oracle. Contrast that with Star Buffet, which has been singled out as a Tiny Gem by the Motley Fool Hidden Gems team. Insiders have spent more than $540,000 on the stock over the past year, while selling exactly zero shares.

  • Multiple owners: Much as I love a big purchase like this $14.8 million investment in industrial-parts maker GenTek (Nasdaq: GETI  ) , research suggests that the best buys involve multiple insiders. That's why I singled out health-products supplier Chattem (Nasdaq: CHTT  ) in February. The shares are up 13.8% since.

  • A story that makes sense: Former Hidden Gems pick CardioDynamics (Nasdaq: CDIC  ) could have made the list because of buying by multiple insiders. But the firm's story still doesn't make sense. Accelerating losses were averted in the latest quarter thanks to a $2 million one-time gain from the sale of derivative instruments. That's hardly encouraging.

The intel on Cantel
A better story may be taking shape at medical-products maker Cantel, though you wouldn't know it from the largely bearish sentiment among the community of investors rating the stock at Motley Fool CAPS:

Metric

Cantel

Total ratings

29

Bullish ratings

14

Bull ratio

48.3%

Bearish ratings

15

Bear ratio

51.7%

Bullish pitches

3

Bearish pitches

3

Source: Motley Fool CAPS

It's easy to understand why. Cantel is very much in transition after losing a distribution partner last year in Olympus America, which had accounted for roughly 30% of revenue. What's more, organic growth has suffered in recent quarters.

Nevertheless, Cantel is an active Hidden Gems recommendation, benefiting from lots of insider buying. Over the last week, five insiders have picked up shares for between $12.69 and $12.83 a stub. Cantel's stock trades for $13.24 as I write.

What gives? Frankly, that's hard to say. Fourth-quarter earnings were by no means spectacular, and competition remains fierce in all of its markets. We're left with management optimism as the only bullish indicator. Could that really be enough? Don't be too sure.

And 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 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. Get the skinny on all of the stocks in his portfolio by checking Tim's Fool profile. The Motley Fool's disclosure policy is a strong buy.


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