It's time to check the most interesting insider purchases from the past 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 4/25/06 |
Total value of stock purchased |
52-week change |
|---|---|---|---|
|
Cash Systems |
$7.85 |
$33,350 |
9% |
|
Imation |
$42.06 |
$3,872 |
19%* |
|
Matria
Healthcare |
$27.41 |
$937,650 |
(6%) |
|
Star Scientific |
$2.60 |
$116,250 |
(45%) |
|
Tortoise North American Energy |
$21.62 |
$10,798 |
(13%)* |
*Adjusted to reflect the impact of dividends.
A pinch for your portfolio
Loyal followers of this column know that I typically dedicate my write-ups to interesting stock ideas spawned from insider buying. But occasionally, I like to show how insider purchases can be deceiving. And that's our first subject today. Meet Star Scientific
Well, actually, I need to give the company more credit than that. According to its business profile at Yahoo! Finance, Virginia-based Star Scientific "develops, implements, and licenses scientific technology for the curing of tobacco so as to prevent the formation of carcinogenic toxins present in tobacco and tobacco smoke, primarily the tobacco-specific nitrosamines."
In other words, Star Scientific wants you to smoke, but it doesn't want you to die. That's at least somewhat thoughtful. But does it equate to an equally decent business? You'd think so from this week's insider buying. According to this filing with the Securities and Exchange Commission, CEO Jonnie Williams on Tuesday spent more than $116,000 to purchase 46,500 shares, bringing his overall ownership interest to 16.7 million shares -- or 21.6% of the outstanding company stock, according to Yahoo! Finance.
Impressive, right? No? Well, you're right to be suspicious, Fool. Here's why: All of Williams' shares were purchased in a private transaction. The footnotes don't name the source, but another SEC filing may provide a clue. It turns out that, last week, a trust that holds more than 10% of the shares outstanding liquidated roughly 1.3 million shares in a private transaction for the same price at which Williams bought. I've no idea whether Williams picked up a portion of the trust's shares, but without any additional context or knowledge as to why the shares were sold, I find it hard to be bullish on a stock when the net selling far outweighs the net buying.
But the story doesn't end there. According to this 8-K, the company in late March repriced warrants to benefit another large investor; not exactly a shareholder-friendly move, in my book.
Here's the moral of my tale. Though it's a great tool, Form 4 Oracle catches only a small portion of insider filings. In this case, you had to go directly to the EDGAR database to see the rest of the story. And as I've shown, it isn't all that pretty. Always look deeper when researching stocks. What you see at first glance may barely resemble what you get after you commit your money.
Imagine Imation
Next up is a stock that feels like an old friend to a tech geek like me. Imation makes storage products, like compact discs and DVDs. It also used to make a top brand of floppy disks. But business is still pretty darn good, according to Foolish friend Stephen Simpson.
Frankly, I don't find that too surprising. After all, IBM
Old tech is in. And, apparently, worth investing in. Imation CEO Bruce Henderson added a small number of shares to his position in the company on Friday. But that came barely a month after acquiring 1,000 stubs. Is he on to something? Well, the stock trades for less than two times its tangible net worth, and the company generates plenty of free cash flow and pays an affordable dividend. That makes the stock at least worth considering and brings to me one final lesson: Small buys can also make for good indicators.
That's all for now. 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 owns shares of Oracle. You can find out what is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.
