I love it when management supports a stock with insider buying. Nothing aligns executive and shareholder interest better than having skin in the game. Without it, management is just playing with your money. So when I recently learned that Wal-Mart (WMT) managers were gobbling up shares, I took note.
Historically, insider buying is very bullish for stocks. In fact, many investors swear by it and closely follow the actions of management with regard to stock trades. The general idea is that who better knows about a company and its prospects than management?
As a result, I would be a buyer of Wal-Mart and a seller of Costco (COST).
As an outside investor looking at Wal-Mart, it’s fairly obvious why one would be bullish. The recession is allowing the company to open doors to a customer demographic that had previously shopped elsewhere.
Now, the only thing that matters is low prices, and on that front Wal-Mart is kicking it. No fancy design nonsense here. Leave that high-priced schmaltz to Target (TGT).
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Instead, let’s increase sales at a time when other retailers are struggling
to keep their sales from falling off a cliff. Such a state is incredibly positive for Wal-Mart shareholders and bodes well for the future.
No wonder management wants to buy shares.
Another motivation may be the forthcoming assault on the electronic space. Watch out, Best Buy (BBY). The collapse of Circuit City has left a vacuum that multiple retailers would like to fill.
It would be a mistake to assume that those customers will automatically gravitate toward Best Buy. With more and more customers flocking to Wal-Mart, many of those folks will be interested in a revamped electronic offering.
The low prices will bring them in, and the high-margin electronic goods will keep them happy. Given that such goods offer higher margins than the traditional food items, a move to this space is a no-brainer.
What, on the other hand, is going on with Costco (COST) ?
With Target in disarray and Wal-Mart dominating the price-savvy consumer market, why is Costco not participating? The answer is poor management.
There really is no excuse for poor performance during a period when customers want the price advantage that Costco can bring. Management will blame the recession or the weakness of the U.S. dollar.
Don’t believe them, especially when a quick look at insider trades reveals sales instead of buys. Costco management, unlike Wal-Mart, is not putting its own money where its mouth is.
I would be a buyer of Wal-Mart and a seller of Costco!
Wal-Mart is still offering investors stunning value. Here are four more survivor stocks to buy now.
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