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 12/5/06

Total value of stock purchased

52-week change

Builders FirstSource (Nasdaq: BLDR  )

$18.34

$861,120

(13%)

Internet Capital Group (Nasdaq: ICGE  )

$9.85

$0

30%

Kirkland's (Nasdaq: KIRK  )

$4.61

$11,700

(32%)

Orthofix (Nasdaq: OFIX  )

$45.54

$118,720

20%

Smith & Wollensky (Nasdaq: SWRG  )

$5.11

$267,300

(7%)

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

Builders FirstSource a source for gains?
I'm usually not much for institutional purchases, but construction supply wholesaler Builders FirstSource intrigues me. Blame the overwhelmingly bullish sentiment present among those participating in the Motley Fools CAPS community intelligence stock database:

Metric

BFS

Total ratings

29

Bullish ratings

27

Bull ratio

93.1%

Bearish ratings

2

Bear ratio

6.9%

Bullish pitches

4

Bearish pitches

0

Source: Motley Fool CAPS

And that's in spite of a not-so-great third quarter. Sales were down 11.5% year over year while per-share GAAP net income declined by 40%. Management attributed the shortfalls to a 20% decline in housing starts and a 14% drop in lumber prices.

But there's more to the story. Despite poor economic trends, Builders FirstSource managed to add 200 basis points to gross margin and gain market share.

What's more, the firm earlier this month announced a deal to acquire Waid Home Center to boost its presence in Alabama. Waid sold $25 million worth of building supply materials during 2005, executives say. Perhaps that's why the shares are up roughly 16% since the earnings report on October 26?

Maybe. Or maybe it's because the shares are, well, cheap. Capital IQ reports that Builders FirstSource trades for just 8.8 times next year's earnings, which is an 18% discount to its projected long-term growth rate of 10.75%.

By contrast, Motley Fool Inside Value pick Home Depot (NYSE: HD  ) trades for 13.7 times next year's earnings, a 9% premium to its expected long-term growth rate. Lowe's (NYSE: LOW  ) , meanwhile, trades for 15.7 times next year's profit, roughly even with its expected growth rate. Either way, Builders FirstSource looks like a budding bargain.

Warburg Pincus' private equity arm, already a significant owner, seems to agree. Between Thursday and Friday, the firm picked up 51,200 shares at an average price of $16.82 a stub. I'm reasonably sure they've got more than a quick 15% gain in mind. Time to add this stock to my CAPS portfolio.

Almost another head fake
From time to time I like to expose insider buys that aren't really insider buys. This week's bogey goes to former dot-com darling Internet Capital Group and chief financial officer Kirk Morgan.

Last Wednesday, he initiated two transactions: a purchase of 5,607 shares at $10.70 a stub and then an immediate sale of the same amount of shares for $10.68 a stub. Regardless of whether he made or lost money the difference wouldn't be more than $100.

But that's not the most interesting part of the story. This is: Morgan sold from his direct holdings and then purchased shares for his IRA account. Seems to me that this was more of a rebalancing effort than some sort of gimmick.

Nevertheless, investors should take heed: always study insider transactions before you buy shares for your own account. What may seem to be a bullish sign could be nothing more than portfolio management. Or worse, a head fake.

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.

Get the inside scoop on stocks of all sizes with related Foolishness:

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Fool contributorTim Beyers, ranked 1,099 out of 15,078 inMotley Fool CAPS, 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 Foolprofile. Motley Fool'sdisclosure policyis a strong buy.


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Related Tickers

8/21/2014 3:59 PM
BLDR $6.82 Up +0.01 +0.15%
Builders FirstSour… CAPS Rating: **
HD $91.15 Up +0.40 +0.44%
Home Depot CAPS Rating: ***
ICGE $18.02 Down -0.03 -0.17%
Internet Capital G… CAPS Rating: *
KIRK $17.30 Down -1.68 -8.85%
Kirkland's, Inc. CAPS Rating: *****
LOW $52.67 Up +0.34 +0.65%
Lowe's CAPS Rating: ****
OFIX $33.35 Down -0.13 -0.39%
Orthofix Internati… CAPS Rating: ***

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