Famed money manager Peter Lynch gave us the inside scoop on how to look at insider transactions. Executives can sell their stock for any reason, he said, but they only buy for one: They think the price is going to go up!
Today, I've highlighted a handful of insiders who have made big purchases of their own company's stock in the past week. These aren't executives getting big chunks of shares from option grants. Rather, they're insiders putting their own money on the line, buying shares at market prices. I then paired that information with insights from the members of Motley Fool CAPS to see if they think the stock has the same prospects the insiders do.
|
Stock |
Insider, Position |
Market Value of Transactions |
CAPS Rating (out of 5) |
|---|---|---|---|
| Scientific Games (Nasdaq: SGMS) |
Ronald Perelman, director |
$9.0 million |
*** |
| Tesla Motors (Nasdaq: TSLA) |
Elon Musk, CEO |
$40.7 million |
* |
| Valhi (NYSE: VHI) |
Harold Simmons, chairman |
$655,000 |
* |
Source: wsj.com; Motley Fool CAPS
Although following the lead of insiders can be profitable, we still recommend you do further due diligence to determine whether these stocks ought to be sold from your own portfolio -- or would make a good addition! So this isn't a list of stocks to sell or buy, but just the inside track on companies you might want to check out further.
Don't bet on it
No one's surprised the government exempts itself from laws and regulations it imposes on private businesses. For example, insider trading laws prohibiting executives from profiting from non-public material information don't apply to Congress. It's how they're able to outperform the average investor by about 6 percentage points annually, according to a recently released study. My father used to call it, "Do as I say, not as I do."
Such hypocrisy by politicians shocks no one, but they're at it again as they try to cope with financing their profligate spending habits. Online gambling was crippled and driven from the U.S., but cash-strapped states hoping to boost sales want you to be able to buy your lottery tickets online. Apparently so long as it's government-sponsored gambling, it's OK; privately run poker shops need not apply.
While the local coffee shops and bodegas that get a cut from in-person lottery ticket sales would be hurt by a move to online sales, companies like International Game Technology (NYSE: IGT), WMS Industries, and Bally Technologies (NYSE: BYI) would hit the jackpot as they already provide the industry with the tools needed to operate. Scientific Games has contracts with 43 of the 44 jurisdictions that offer instant lottery tickets, so it's in prime position to benefit from adoption of online lotteries.
Investors think the odds are in Scientific's favor, and 88% of the CAPS members rating the gaming technology leader will beat the market indexes. But you can let us know whether you'd wager on its success on the Scientific Games CAPS page.
Revenge of the nerds
As Tesla Motors readies its mass market Model S for a full production run, the environment for all-electric vehicles has changed considerably from when the breathtaking Roadster was unveiled back in 2006. Today General Motors (NYSE: GM) offers the Volt, and Nissan has the Leaf. Ford (NYSE: F) will soon have an EV Focus.
Although broad acceptance has not been achieved -- not yet anyway -- it's no longer the stuff of some weekend-warrior mechanic in his garage cobbling stuff together.
Because of fairly stunning design, though, Tesla is still able to capture the imagination. The Model S is a sport sedan, but is sleek in its styling and should go on sale late next year. CAPS member EFRROS says Tesla is the industry's thought leader here.
Tesla started the ball rolling and the other large slow behemoth just follow suit. Without Tesla, GM, Nissan, Ford and all the others would still not have made any attempt to market efficient cars. Thanks to Elon Musk, he got them moving off their fat lazy behinds and the status quo!
Let us know on the Tesla Motors CAPS page is the stock is as noteworthy as its cars.
Don't throw this one in the trash
Waste specialist Valhi has fallen 15% from its recent highs. After getting a nice bounce following news it was increasing its dividend, the stock has suffered two big sell-offs, the latest coming late last week after it announced a new contract with the Tennessee Valley Authority.
The drops have been of no consequence to Valhi's chairman, Harold Simmons, who's been regularly buying shares all year along. In June alone, he's bought close to $4 million worth of stock. Obviously, he's feeling comfortable in the company's ability to keep growing -- even with the recent pullback, Valhi's stock has tripled in value over the past year.
Yet, less than two-thirds of CAPS members rating Valhi think it can continue its market-beating ways. CAPS All-Star MegaShort says a sum of the parts valuation shows the stock is overvalued still. But don't waste a moment; head over to the Valhi CAPS page and give us your own thoughts on its potential. And follow along on its progress by adding the stock to the Fool's free portfolio tracker.
On the inside track
Following the insiders can be a path to profits, but it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Sign up today for the completely free service, and tell us whether its worth trading on this inside information.
