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Insiders' Guide to Buying the Pullback Part III
By Michael Brush
Exclusively for InvestorIdeas.com
August 16, 2007
Insiders are buying so fast and furious now it is almost impossible to keep up with them. It’s almost impossible to examine all the trades to see if they have merit.
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I’ve been looking closely at insider trades for three years now, and I know this feeling. It feels like a bottom is near in the sell off. Of course counters – yes the very people who helped get us into this mess with their quantitative models that put many of them in the same leveraged trades – demand more than anecdotes.
They want hard numbers. And for that I will turn to InsiderScore.com, which keeps a running tally. Its weekly models, published most recently on Aug. 15, show that the broad-based buying and “multi-year low levels of selling” which continued last week placed insider sentiment yet once again “firmly in bullish territory.”
Buyers at financial stocks are still leading the way. But they’ve been joined by buyers in companies that produce basic materials, consumer goods, services and technology. This makes perfect sense because those are all “cyclical” sectors which will do well if you expect economic growth to continue at a fairly healthy clip, as I do.
The buying in the financials confirms my belief that the fears about a credit crunch are overdone. I’m not saying we won’t see some more nasty down days – and in fact I am expecting them. This sell off doesn’t seem to have impacted retail investors too much, and we need a little fear from that quarter to complete the correction. A few 500 point down days on the Dow might do it. I wouldn’t be surprised to see that as a reaction to some unforeseen bad headlines – and I am sort of hoping for it, to get all this behind us.
Here’s a quick guide to some of the more significant buying in the past few days in micro cap stocks -- examples you are likely to find only here at Insiders Corner since these stocks are too small to be covered by the major financial press. Yet we know that the insider signal can be even more potent at these smaller, less covered names, so they are well worth checking out.
Technology
We haven’t seen much buying in tech land in the past several months, but now they’re back. What’s interesting about this is that tech has been one of the stronger sectors during the recent market sell off. So the fact that insiders are buying even without a sharp pullback is even more bullish. Our three micro caps have all been hit, however.
TechTeam Global (TEAM) is down over a point from highs earlier this year. Insiders consider their shares a bargain in the weakness, because they have purchased $366,000 in recent days. This tiny $121 million market cap company provides information technology and business process outsourcing.
Borland Software (BORL) , which sells analytical software, took a huge plunge earlier this month when it lowered guidance. Down at around $4.50 insiders are saying the selling is overdone. They’ve purchased $159,000 worth of the stock this week.
Axcelis Technologies (ACLS), which makes chip equipment, has also been hammered. It’s fallen below $5, from $8 in May. A director bought $248,000 worth of stock last week just under $5.
Essentials
If you want to hedge your portfolio a bit because you are not sure about the outlook for a return to healthy economic growth, you may want to follow insiders into two companies that sell essentials -- kind of things people use in good times and bad.
The chief executive and other insiders at the food manufacturer Treehouse Foods (THS) recently purchased $317,000 worth of stock, for example. Insiders at Cal-Maine Foods (CALM) recently purchased $310,000 worth of stock, a decent signal at a $384-million market cap company.
Energy
Of course, I hope no one gets injured with the approaching Hurricane Erin that looks like it’s moving in on the Gulf Coast. But if it does happen to hit the coast hard and create havoc with the energy infrastructure, that could push up natural gas prices. So the recently-weak energy stocks would get a boost. Here are the ones insiders are buying, even without a hurricane threat.
Insiders recently purchased significant amounts of stock at Basic Energy Services (BAS), which provides oil and gas drilling services in the U.S. They also bought a fair amount at Brigham Exploration (BEXP), which produces oil and gas in the U.S., and PetroQuest Energy (PQ), an oil and gas company in the U.S. There was also more buying at NGP Capital Resources (NGPC), a company I own, which offers financing to small energy companies (http://www.investorideas.com/insiderscorner/Articles/052507.asp).
Housing and Real Estate Investment Trusts (REITs)
For the brave of heart, there are several buy candidates in the home building and real estate sector. Personally, I think it’s too early to enter this group, but the insiders at these companies disagree.
They were fairly big buyers recently at the home builder M/I Homes (MHO) and Beacon Roofing Supply (BECN). There was also a fair amount of buying at GMH Communities Trust (GCT), which offers housing to college students and people in the military.
But the really big buying came at Resource Capital (RSO), a financing REIT, and Inland Real Estate (IRC), a shopping center REIT. Resource Capital insiders have purchased $8 million worth of stock in the past month on a big pullback. That’s one I might pick up this week in pullbacks. If you do as well, don’t get overextended -- as all the goblins are not out of the woods yet in real estate financing. At Inland Real Estate they bought $1.8 million worth of stock, a sizeable amount.
The bottom line : This is a traders market, with all this volatility. But it’s not a bad time to buy and hold, as well. In either case, the fourteen stocks above make good candidates to consider.
Disclaimer
At the time of publication, Michael Brush owned shares of NPG Capital Resources. 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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