In an article a few weeks back, I questioned whether the homebuilders have become bargain investments. Most of the big names -- including Pulte
Perhaps. But I also spoke of NVR
Eating his own cooking?
If the activity of senior executives offers any indication of a company's future prospects, then NVR might be the exception to the bad news in this housing meltdown. Earlier this month, founder and Chairman Dwight Schar purchased $52.4 million worth of NVR shares in the open market. Following that purchase -- the largest on record by an NVR insider -- Schar now owns approximately 8% of the shares outstanding.
Schar's purchase came six months after he sold 259,193 shares for $211 million, or an average price of about $815 each. While the recent purchase was surely made with profits from the earlier sale, Schar's willingness to buy again so quickly appears to indicate a favorable future for NVR. An SEC rule known as the short-swing profit rule required Schar to wait six months from his date of sale before he could make a purchase, and his purchasing began on the first market day after the ban was lifted.
So it sounds as if there may be hope for this homebuilder. But I haven't heard about any such bullish moves from any of the other homebuilders. To be fair, Toll Brothers
Still, whatever hope lies ahead is still a few years away. I wouldn't expect to see NVR trading above $800 anytime soon. But if NVR's stock price were to reach that level in four years or so, you'd have an annualized rate of return of 14%. Not too shabby.
In my aforementioned article, I said I would want a greater margin of safety before investing in NVR, and I mentioned that if it ever traded at book value, the investment opportunity would become enticing. To get to that point, NVR would have to sell for around $200 a share, or more than 50% lower than Schar's purchase price. While nothing's out of reach in this market environment, sometimes an insider's purchase -- i.e., consciously putting more skin in the game -- can increase your margin of safety in lieu of a lower buying price. Given NVR's solid balance sheet, conservative management, continuing profitability, and recent insider buying, patient long-term investors might want put this business on deck for an investment.
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Fool contributor Sham Gad is the managing partner of the Gad Partners Fund, a value-centric investment partnership operating in similar fashion to the 1950s Buffett Partnerships. He has no stakes in the companies mentioned. He can be reached at firstname.lastname@example.org or by visiting www.gadcapital.com. The Fool has a disclosure policy.