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 2/21/06

Total value of stock purchased

52-week change

Boston Scientific (NYSE: BSX  )

$24.37

$4,559,870

(24%)

Chattem (Nasdaq: CHTT  )

$37.99

$650,807

3%

Fossil (Nasdaq: FOSL  )

$18.53

$1,287,573

(28%)

Oakley (NYSE: OO  )

$15.41

$2,092,168

18%*

Titanium Metals Corp. (NYSE: TIE  )

$40.80

$15,457,352

409%*

Sources: Fool.com, Yahoo! Finance, Form 4 Oracle, SEC filings
*Adjusted to reflect the effect of dividends and splits

Not all insiders are equal
I've said more than once that I appreciate buying by executives more than by large-stake owners, such as hedge funds. It so happens that there's research to back up my preference. In a December 2003 study of insider transactions at 2,500 firms, Professor Dirk Jenter of the Sloan School of Management at the Massachusetts Institute of Technology found that managers tend to buy when their stocks are cheap.

Not all insider buying was equal, however. For example, top executives were most likely to buy in groups when the shares were trading at their cheapest multiple to earnings. And doing so often led to outperformance over the next year, by more than 3% on average. So from now on, the focus of this column will be on the patterns of buying among executives and board members.

An icy hot stock
My best investments tend to be Rule Breakers, but I'm just as comfortable owning cheap consumer stocks. That's why Chattem caught my attention this week. The maker of Icy Hot, Gold Bond powder, and Selsun Blue shampoo is the small fry in over-the-counter health products and consumer durables. And when I say "small fry," I mean "really tiny." Chattem trades for barely more than $700 million, while competitors Johnson & Johnson (NYSE: JNJ  ) , Pfizer (NYSE: PFE  ) , and Procter & Gamble trade for $175 billion, $192 billion, and $203 billion, respectively.

That may be one reason why investors don't appear to have much faith in Chattem. More than 13% of its tradable shares -- otherwise known as the "float" -- have been sold short, which means that these investors have bet on a decline in the share price.

I usually take short sellers seriously because their losses can be infinite. But in this case, I wonder whether it's not the herd mentality at work. Let me explain: Chattem recently reported fourth-quarter results that missed analyst estimates by a penny. The stock lost 13% of its value in a day as a result. That seems pretty silly, especially when the company had already said growth would temporarily subside as new products came to the fore. And given a look, I can't seem to find anything seriously awry.

Now, Chattem trades for just 16.2 times the mid-point of forecasted 2006 earnings per share ($2.35). I'd call that reasonable since the firm says it will grow the bottom line by 10% to 15% this year. And executives seem to agree. Six different members of the management team have spent more than $650,000 buying stock since last Thursday. Color me crazy, but that sounds like Jenter's dream scenario.

Uncovering more at Fossil
Maybe I should just shut up about Fossil. First, I thought it might be undervalued, but it turned out I was wrong. Then, I thought it unlikely that the founding Kartsotis brothers were buying back shares to take the watchmaker private, but I might be wrong about that, too. Take a look at this pattern of buying by CEO Kosta Kartsotis:

Date

Shares purchased

Avg. price

12/16/05

39,602

$20.12

12/23/05

70,000

$20.69

12/30/05

70,000

$21.66

1/13/06

70,000

$22.03

2/3/06

70,000

$17.40

2/10/06

70,000

$18.10

2/17/06

70,000

$18.39

Sources: Form 4 Oracle, SEC filings

Isn't that just a little spooky? I mean, really, 70,000 shares almost every time, irrespective of price? That would make sense if he were selling and on a 10b5-1 trading plan. But he's not; he's buying. And it appears to be programmed buying. Hmmmmm. (Scratches head.)

I've already put in a call to the company to ask for clarification. Whatever I learn, I'll publish here in the coming weeks, so stay tuned.

Finally, an apology to readers: This column moved to Wednesdays with no warning. I won't be moving things around again for a while. Fool's honor. 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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Pfizer is a Motley Fool Inside Value pick.

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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