When I am analyzing a company to see if it could potentially be a good long-term investment, I always look at the insider buying. It goes without saying that they probably have a much better idea of what is happening in the company than most analysts. They certainly know more about it than I do. I especially like to see what they are doing after their company stock has fallen dramatically.
I am not implying that there is anything illicit or illegal going on. When an insider wants to buy or sell their company’s stock they can as long as they follow very strict procedures. They have to file their intent to buy or sell with the SEC, and they are subject to “blackout periods”. These are times in which they cannot trade the stock. For example, insiders may be prohibited from buying or selling the stock in the thirty days before or after the earnings release is due to be reported.
There are many reasons why an officer or a director of a company may decide to sell their stock. They could need to raise money for things such as tuitions, mortgages, weddings or divorce settlements.
But they only buy it for one reason: They believe that the stock is undervalued and eventually it will trade at a higher price where they can make a profit.
These five stocks came up on my radar screen as potential buys due to the significant insider buying that has recently occurred.
Range Resources Corp (RRC)
Range Resources Corp (NYSE:RRC) develops and acquires natural gas and oil properties in the Appalachian and Midcontinent regions.
Mark Succhi is the Chief Financial Officer and a Senior Vice President. On April 30, he invested $100,000 when he purchased 11,100 shares at $9.04. On March 11, a director named James Funk paid $9.80 for 10,000 shares.
RRC stock has fallen by about 50% since November. It could have something to do with the fact that last year the company lost $7.1 per share … a loss of $1.75 billion. In 2017, net income was $330 million, or $1.35 per share.
It seems that these two insiders believe that the selloff is overdone and that the stock is an attractive investment at these levels.
GrubHub (NYSE:GRUB) operates as an online and mobile food-ordering company, which connects diners with local takeout restaurants. Personally, every time I have ever tried to use the service they are late, so I’ve stopped using them.
The stock price has fallen 50% since September. This could have something to do with their reduced earnings. In 2017 they earned $1.15 per share but in 2018 that fell to $.85. The current short interest, or percentage of daily volume that is held by short-sellers, is 17%. This is pretty high, but consider that all of these short sellers eventually need to buy the stock back.
Maybe this is why the Chief Executive Officer invested $1 million of his own money when he paid $64.87 for 15,416 shares on April 30.
Allison Transmission (ALSN)
Allison Transmission (NYSE:ALSN) builds transmissions for heavy-duty equipment like tanks and bulldozers.
G. Frederick Bohley is the Chief Financial Officer, the Treasurer, and a Vice President of the company. On April 26, he invested $230,000 of his own money when he paid $46 for 5,000 shares.
One thing that stood out to me when I analyzed this company is that the price-to-earnings ratio is 9.31X, which is pretty low. Maybe this is one of the factors that Mr. Bohley considered when deciding to make his investment.
Cerner (NASDAQ:CERN) designs, develops, markets, installs, hosts and supports healthcare information technology for healthcare organizations and consumers. It is a huge company with a $22 billion market capitalization and a global presence.
On April 30, R. Halsey Wise, who is a Director of the company, spent $500,000 of his own personal funds when he bought 7,600 shares at $65.76. The stock has gained over 30% since the beginning of the year. Mr. Wise must believe that there is still considerable upside potential.
Simmons First National (SFNC)
Simmons First National (NASDAQ:SFNC) is a financial holding company. The company has been around since 1903. It provides a wide range of banking services to individual and corporate customers. It has financial centers in Arkansas, Colorado, Kansas, Missouri, Oklahoma, Tennessee and Texas.
Mr. George Makris is the Chairman & Chief Executive Officer of Simmons First National. On April 25, he reported purchasing 5,000 shares at a price of $24.61. Eugene Hunt, who is a Director, purchased 1,000 shares on the same day at the same price.
The price of the stock has fallen about 25% since last June. It’s possible that these two insiders thought that the selloff is overdone when they decided to make their investments.
As of this writing, Mark Putrino did not hold a position in any of the aforementioned securities.