One of the most talked-about (and bizarrely least-used) factors in picking stocks is insider buying.
There is only one mutual fund I am aware of — the Undiscovered Manager Fund Behavorial Value Fund (MUTF:UBVAX) — that mentions insider buying. You turn on CNBC or Bloomberg during the day, and very few hedge fund types are talking about following insider activity as a clue to future performance.
And yet, there is a huge catalog of data and reports that indicate that insider buying and selling is a very good indicator of future performance.
So, I check insider activity on a daily basis, and I’ve recently spotted some positive insider activity in out-of-favor stocks that might be nearing a bottom.
Stocks With Insider Buying: Commercial Metals Company (CMC)
Commercial Metals Company (NYSE:CMC) has five business segments operating in the steel and metals industry. CMC recycles scrap metals for use as a raw material by manufacturers of new metal products; operates five steel mills, fence post manufacturing plants, construction-related product facilities and plants that bend, weld, cut and fabricate steel; and has a segment that sells and distributes steel products.
CMC stock has fallen sharply and is down more than 15% in the early days of 2015, but at least two insiders think the selling is overdone. Controller Adam Hickey and Director Rhys Best were buying stock in the open market last week, and the week prior to that, Director Robert Guido purchases shares.
Stocks With Insider Buying: AZZ Incorporated (AZZ)
AZZ Incorporated (NYSE:AZZ) sells equipment and engineered services to power generation, transmission and distribution as well as industrial companies. AZZ makes equipment for the transmission of power from generation sources, safety equipment for the nuclear industry and hot dip galvanizing services to the steel fabrication industry.
AZZ stock has recovered somewhat this week, but still is down almost 10% so far in 2015. Although CEO Thomas Ferguson sees some growth in key markets like power, petrochemical and industrial markets, the outlook for other markets like oil and gas and nuclear powers is not that good right now.
Still, Ferguson must be pretty positive on the longer-term prospects for the company and the stock as he spent $314,000 last week to buy shares in his company. The day before he put in his orders, CFO Paul Fehlman invested more than $80,000 to buy shares.
Stocks With Insider Buying: Compass Diversified Holdings (CODI)
The biggest insider buying was at Compass Diversified Holding (NYSE:CODI). This company functions like a private equity firm, providing equity and debt capital to middle-market business. Compass owns a controlling stake in all nine of its portfolio companies.
Compass currently pays a very attractive dividend of 36 cents per share quarterly, which works out to a yield of nearly 9%. It’s worth noting that while CODI hasn’t raised its payout in a few years, it hasn’t cut its payout — even as similar companies were cutting dividends back in 2008-09.
The officers of the company apparently like the outlook for the company, as they combined to buy more than $360,000 of stock in the open market earlier this month.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.