Choosing the right stocks to invest in can be a difficult
proposition for even the most sophisticated investor. Today's
market participants are faced with an overwhelming amount of
information about every public company.
#-ad_banner-#This means that the key for investment success is
the ability to filter this data and focus on the most pertinent
information. The big-money players cumulatively spend billions of
dollars every year to filter this monstrous data stream.
Fortunately, for the rest of us, it doesn't need to be that
expensive. In fact, one of the keys to successful stock picking
is readily available for free on www.nasdaq.com and several other
websites. I'm referring to information on insider trading.
You see, every insider transaction needs to be reported to the
SEC on Forms 3 and 4. This means every investor can easily access
this crucial information for making investment decisions.
When I find a stock with an appealing technical and
fundamental picture, I look at what the insiders are doing and
use that information to help me make my decision. If I am bullish
and recent insider buying greatly outweighs insider selling, this
is a strong confirmation of my bullish bias.
On the other hand, if selling greatly outweighs buying, this
could be bearish for the stock -- but not necessarily. Insiders
sell stock for any number of reasons: Just like anyone else,
insiders have monetary needs for expenses that may be personal
and not related to the health of the business. Consequently, I
place much more weight on heavy insider buying than I do on
Here are two stocks with heavy recent insider buying.
|BJ's Restaurants (Nasdaq:
Launched in 1978 in Orange County, California,
BJ's Restaurants makes its own craft beers and sells them
at its chain of deep-dish pizzerias, which now numbers
148 restaurants in 17 states. Boasting a market cap of
just over $860 million, the company had revenue of $775
million and gross profit of $409 million last year. BJ's
has nearly $31 million in cash on hand and operating cash
flow of nearly $96 million last year.
However, the company had a disappointing fourth
quarter. Although revenue was up from the same quarter
the previous year, earnings fell 78% as comparable-store
sales slumped 2.7%, and guest traffic dropped 2.3%.
Analysts cited aggressive discounting and higher
promotional marketing offers. The severe winter across
much of the U.S. may have played a role in the traffic
Fortunately, the company has no debt and is adding
locations in an effort to turn its slump around. In
addition, several activist investors, including PW
Partners and Luxor Capital Partners, have become
involved. PW Partners' Patrick Walsh has experience in
working with Denny's, Famous Dave's and Red Robin. His
first move is to nominate five people to the board of
directors. Word of the activists' involvement sent shares
soaring from the $25 range to just above $35 before
drifting back to the $30 area.
Luxor currently owns 10% of BJ's and purchased close
to 457,000 shares at $34.70 on March 19. Patrick Walsh
purchased just over 90,000 shares at $34.57 on the same
date. Insider sales greatly outnumbered insider buys in
the last 12 months, with 43 sales to 15 buys. However,
the 890,029 shares purchased by insiders dwarfed the
44,828 shares sold. There is incredible insider support
of this company despite its struggling numbers.
NuStar Holdings (NYSE:
The next stock on my heavy insider buying list is
NuStar Holdings. NuStar is a publicly traded limited
liability company (LLC) that owns a 2% general
partnership interest, incentive rights, and a 13% limited
partnership interest in NuStar Energy, one of the leading
terminal and pipeline operations in the United States.
NuStar Holdings also has business in Mexico, the United
Kingdom, Turkey and the Netherlands.
I first learned about the investing power of the
master limited partnerships (MLPs) from Nathan
Slaughter's High-Yield Investing advisory. One of the
benefits of MLPs is that they are structured so that the
majority of profits are paid out as dividends to
shareholders. This fact is reflected in NuStar's dividend
yield of 6.4%.
What I find compelling is that 20% of the owners in
this stock are insiders. Over the past 12 months, 251,925
shares were purchased by insiders, compared with 15,802
shares sold. NSH is up 7% this year and is exhibiting a
steady trend higher.
Risks to Consider:
Although insiders possess the most knowledge about a company,
they are not always right about the company's prospects. No
matter how compelling a stock looks, always use stop-loss orders
and diversify when investing.
Action to Take -->
I am bullish on both these stocks due to the technical and
fundamental pictures combined with the heavy insider buying.
NuStar is a buy right now in the $34 range, and I wouldn't be
surprised to see it at $40 within the next 52 weeks.
BJ's Restaurants is a little more speculative due to its poor
performance recently and the uncertainty around the
activist-driven turnaround efforts. Risk-taking investors can buy
on a further pullback into the buy zone channel on the chart,
with the lower line on the channel used as a stop loss. With that
said, I expect to see BJRI trading at $35 or higher within the
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