Who doesn’t love insider buying? The beauty of insider buying is that few insiders are going to risk their own capital on their own stock if they believe the stock is going to crash. Outside of limited exceptions, where crazy-rich people engage in insider-buying as a PR tactic to keep a stock afloat when it likely will crash, insider buying is as close to a vote of confidence as you’ll get from a company.
Think about the psychology of insider buying a little more. Actions speak louder than words. A company officer or spokesman can say anything in a press release about how great things are. However, if those words translate into insider buying, then you know they actually believe what they are saying.
If the insider buying is particularly large, the implication is particularly bullish. It suggests that, out of all the possible places that this officer could invest his or her money, he has chosen to do so in this very company.
With that in mind, here are some recent insider moves to take note of:
I have never been that crazy about aluminum. Not that I’m any kind of aluminum expert, but the economy hasn’t been terribly grand, and as a commodity, it’s too volatile for my taste to get involved in. Still, Alcoa (AA) has made quite a comeback over the past 52-weeks. AA stock hit a low of $7.68, and I should’ve realized that when everyone is writing a company off, the time to buy is nigh.
And now AA stock trades just below $17.
If you go back to October of 2012, you see two insiders purchasing AA stock in chunks here and there. Martin Sorrell and Ratan Tata were buying in the $8 range (twice each), the $10 range, and the $12 range. They did it in $20,000 chunks, and now director Michael Morris bought in for half a million bucks at $16.54 this past week. That’s a big vote of confidence, and perhaps a signal that more upside is on the way.
Fastenal (FAST) is a nifty company I like, because it sells just about any kind of construction supply related to … fasteners. Really. Yeah, crazy, I know, but FAST stock is a $13 billion company, with 15% annualized EPS growth.I think it’s a bit overpriced, but some insiders apparently think otherwise.
FAST stock trades at $45, but since August of 2012, there have been a whopping 25 insider purchases, from several people. The purchases range from just a few hundred shares up to 10,000 shares. This shows broad support by insiders because of how many actually purchased stock, and there have been three purchases this month along for just over $200,000 in the aggregate.
With that many insiders buying, it almost seems foolish to do otherwise.
Lexmark International (LXK)
The last selection is yet another stock I left for dead: Lexmark International (LXK). I just have a hard time believing a printing company is going to survive for much longer. But hey, I must be wrong because LEXK stock has got $1 billion in cash, and only $600 million or so in debt. It is routinely FCF positive, in the $300 million range annually. Management also said it plans to return 50% of free cash flow to shareholders as either dividend or buyback. Then again, there’s no EPS growth to speak of … at all … so I don’t get the 12x estimate it trades at.
Apparently, however, director Stephen Hardis thinks LXK stock a good place to stash $25,000 each and every quarter, as he appears to be on the regular insider buy plan. Officer Robert Patton indirectly purchased $426,000 in February. Perhaps they see something I don’t.
It may be that revenue increases in various segments is on the mend. Hardware revenues were up 7%, driven by a 9% spurt in workgrop hardware sales. The Managed Print Services segment was up 14%, and Perceptive Software revenues popped 3%. The planned return of 50% of FCF to shareholders may suggest that cash flow has stabilized to the point that LXK stock will rise as its 3.2% yield will attract dividend investors.
Lqwrence Meyers does not own shares in any company mentioned.