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Despite the Market Panic, Insiders Buying Confidently
By Michael Brush
Exclusively for InvestorIdeas.com
June 22, 2006
With the market unraveling, it seems more appropriate to consider lots of stocks where insiders are buying on big pullbacks, rather than focus on just one or two companies.
After all, this sell off has gotten a bit irrational. Who better to bring some sense to the situation than insiders who are putting their money into the companies they know best.
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With that in mind, here’s a quick roundup of fourteen companies where insiders have made decent-sized buys since early May, including a few we’ve already written about where insiders are back buying even more. Here’s a closer look.
Two shoe stores
Based in Columbus, OH, DSW (DSW) is a chain of shoes stores with 200 shops in 32 states. Unlike every other stock in this column, DSW is actually trading near a 52-week high thanks to strength in the most recent quarter and upward earnings guidance from management. Despite the strength of the stock, insiders bought $250,000 worth in mid-June for around $32. The stock recently sold for $33.60.
DSW has been hitting the fashion trends right. Strong marketing and a new loyalty program should also continue to help sales, says CIBC World Markets analyst Dorothy Lakner. “In our view, DSW is well positioned for growth ahead,” she says. DSW has solid financial strength with $3.60 per share in cash and no debt.
Unlike DSW, Steven Madden (SHOO) shares have been hit hard since the company guided estimates down on May 2. The stock unraveled to $25 in June from $35 a few weeks earlier. Insiders bought $180,000 worth of stock for $28 and below in early June. The stock recently sold for $27.50.
Wedbush Morgan Securities analyst Jeff Mintz believes Steven Madden shares could get back up to $35 in a year, thanks to a strong product offering and improving gross margins because if better inventory management.
ADC Telecommunications (ADCT)
Shares of this telecom equipment provider fell apart in late May and June, slipping as low as $16 from $23 after it announced plans to buy Andrew (ANDW), another telecom equipment provider.
Insiders, however, think they made the right move and cost savings and other synergies will pay off. After the stock tanked, they bought $715,000 worth for prices between $15.91 and $17.80. Shares seem to be stabilizing just above $16.
Persistent buyers in energy stocks
Energy stocks have been hammered in the recent market mayhem. But insiders seem to think they are coming back – especially names with exposure to the natural gas market in North America where structural shortages aren’t going away any time soon.
In the recent weakness, insiders have been buying significant amounts at Chesapeake Energy (CHK)
http://www.investorideas.com/insiderscorner/Articles/Four_Natural_Gas.asp and Goodrich Petroleum (GDP) http://moneycentral.msn.com/content/P125119.asp.
EPD They’ve also bought more on the pullback in Cano Petroleum (CFW)
http://www.investorideas.com/insiderscorner/Articles/Satisfy_the_Hunger.asp and
Abraxas Petroleum (ABP) http://www.investorideas.com/insiderscorner/Articles/061506.asp.
I’m adding two new names to our list of energy companies where insiders are buying. They are Enterprise Products Partners (EPD), a limited partnership where chairman Dan Duncan recently purchased $1.7 million worth at $24.06, and the oil and gas company Quicksilver Resources (KWK) where chief executive Glenn Darden bought $300,000 worth for $29.98 after the stock fell hard from $45 in May.
U-Store-It Trust (YSI)
I recently featured this self storage company because of the strong insider buying http://www.investorideas.com/insiderscorner/Articles/060806.asp. Since then, director Robert Amsdell topped all purchases so far this year when he bought $998,000 worth of stock at $17.71 in mid-June, reinforcing the bullish case for this name.
International Coal Group (ICO)
Based in Ashland, KY, this coal company operating chiefly in Kentucky, West Virginia, and Illinois has seen its shares fall to $7.50 from $15 last September because of reduced expectations for growth. Down here, however, insiders think the sellers have taken things too far.
Chief executive Bennett Hatfield recently purchased $306,000 worth of stock for $7.30 and below. And a restructuring and investment fund called WL Ross & Co. which is linked to International Coal Group director Wilbur Ross has purchased $24 million for $7 and below. You’d think that as director, he knows what his fund is getting into, and that it won’t be losses.
Brookfield Homes (BHS)
Based in Fairfax, VA, Brookfield Homes sells houses primarily in or around San Francisco, Los Angeles, San Diego, Sacramento and Washington D.C.
Like many home building stocks, Brookfield Homes has been hammered. It traded above $53 in March but began to slide in late April and fell all the way down below $30.
Since May 5, chief executive Ian Cockwell has purchased over $6 million worth of his company’s stock for prices between $30.76 and $42.38. Like many homebuilders, Brookfield Homes looks cheap, trading for just .72 times sales.
Color Kinetics (CLRK)
Based in Boston, Color Kinetics designs and sells light emitting diode (LED) lighting systems. Thanks to an earnings miss, Color Kinetics fell to $14 in June from above $22 in early May. During the carnage, director John Abele purchased $657,000 worth of stock for prices between $14.41 and $16.26. Even after the crack up in the stock, it’s hard to make the case that it looks cheap. It has a price to sales ratio of nearly 5. But it does have around $3 in cash on the balance sheet and no debt.
A.S.V. (ASVI)
A.S.V. makes all-season vehicles used in the construction, agricultural and landscaping, and in the military. The stock fell to $18 in June from $34 in late March as demand slipped because of a slowdown in the homebuilding sector. Along the way, insiders bought $290,000 worth of stock for $19 to $22. They are counting on an expanding dealership network and new models to support strong sales growth. The company also announced a $10 million buy back on May 24.
The bottom line: The hardest time to buy stocks is when they are falling apart, because you never really know how bad things will get. But insiders at all these names seem to be telling us that things won’t get too out of hand. I’ll take that as a sign to buy any of these stocks right now.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. 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/. InvestorIdeas.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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