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An Insider Guide to Buying the Pullback – Part II
By Michael Brush
Exclusively for InvestorIdeas.com
March 15, 2007
There’s so much ongoing insider buying in this market weakness, I can better serve readers by offering up a menu of names once again – instead of drilling down on just a few.
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Like last week, I screened out insider-buy names that also have significant selling, unless the selling was part of an ongoing automatic program. I’ve also checked valuations and financial strength to weed out potential problem stocks.
Investing is never like “shooting fish in a barrel.” There are too many risks. But as long as the economy holds up – which I believe it will – most of these stocks should be higher within several months. Here’s a closer look at companies with some of the most significantly bullish insider buying in the past week.
Two consumer stocks
Time Warner Cable (TWC) has fallen to $36.50 from $41 since late February, after debuting in an initial public offering at the start of the year. On the way down, two directors purchased $480,000 worth of stock at $36.90.
Down here, Time Warner Cable trades for an enterprise value to cash flow of 11.2 or a little bit below that of competitor Comcast (CMCSA), which trades at an enterprise value of 11.3 times cash flow. Time Warner Cable was spun out of Time Warner (TWX).
Quiksilver (ZQK), which sells ski equipment, is a victim of global warming. Sales were horrible this winter or the “worst in decades,” according to chief executive Robert McKnight Jr. As the news circulated in early March, analysts downgraded the stock. It has fallen to $11 from $16 when the market mayhem began in late February. In the carnage, a director purchased $246,000 worth at $11.37. The company also sells surf equipment – so unless the weather gets too hot, global warming could provide a boost in the coming months. Over the past several years, whenever this stock falls apart it tends to find support right around here – or in the $10 to $11 range.
Two big dividend guns
Thornburg Mortgage (TMA) looks like it’s at ground zero for a mortgage market melt down. The company originates adjustable and variable rate mortgages. Fears about the housing market and mortgage lending have helped drive this stock down to $24 recently from $27 in early February. But insiders don’t see a problem. They have purchased $5.3 million worth since March 6 at prices from $23.76 to $24.23. Down here, the company pays a forward dividend of 11%.
American Financial Realty Trust (AFR) is a real estate investment trust (REIT) that owns and operates properties leased to financial institutions. The stock has fallen to $10.50 from above $11.50 in the market rout. Chief executive Harold Pote bought $517,000 worth at $10.34 on March 14. A director purchased $11,000 worth at $10.87 earlier this month. The REIT pays a forward dividend of 7.1%.
Health care
Conseco (CNO) shares have plummeted to $17 from $20 since early March. Shares of the life and health insurer got a push down on March 6 when it announced a loss of two cents a share compared to 42 cents a share in profits a year ago. Benefits and expenses grew by 18%, and investment losses tripled. The company also announced a delay in the filing of its annual report because of shortcomings in some “actuarial financial reporting processes." Though the company said the problems were not material to current or prior financial statements, investors sold. Chief executive James Prieur thinks they are making a mistake. He bought $1.7 million worth of the stock on March 13 for $16.66.
DJO Incorporated (DJO) sells rehabilitation and regeneration products used in the orthopedic, spine, and vascular markets. Products include knee braces, pain relievers, devices that help bones grow, and vascular products that help prevent deep vein thrombosis and pulmonary embolism after surgery. The stock has fallen to $36.50 from $40 earlier this month. A director bought $490,000 at about $38.
Energy
Cano Petroleum (CFW) recently sunk to its low for the year, or $4.41. On the way down, a 10% owner purchased $950,000 at $4.64. The company is applying new technology to exploit energy fields abandoned back when oil was much cheaper. It’s not been a great investment since I wrote about it last year (http://www.investorideas.com/insiderscorner/Articles/Satisfy_the_Hunger.asp), and it should have stopped out much higher at the 25% loss which is the maximum we will permit. At these levels it’s worth revisiting for a second shot.
A quick roundup
There was also a lot more buying at several stocks I wrote about last week or in other recent columns. Here’s a look.
Insiders at several companies mentioned in last week’s column (http://www.investorideas.com/insiderscorner/Articles/030807.asp) were buying even more. This is a bullish signal. There was more buying at Dean Foods (DF), Saul Centers (BFS) and Inland Real Estate (IRC).
An insider was also buying more at Coca-Cola (KO) (http://www.investorideas.com/insiderscorner/Articles/030107.asp).
And fund manager Robert Robotti was purchasing more of Panhandle Royalty (PHX) in the low $19 range (http://www.investorideas.com/insiderscorner/Articles/011107.asp), a company where he serves on the board. I’d try to get in around the same level with limit orders.
The bottom line: Will the sub-mortgage meltdowns spread and hit consumer spending so hard that the economy will slow? I’m betting it won’t, and these insiders seem to agree.
Disclaimer
At the time of publication, Michael Brush owned shares of Panhandle Royalty. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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