I've been tracking the moves made by insiders for more than
two decades -- but recently, I've been paying less attention.
That's because my experience has shown that following the
moves of insiders in a rising stock market isn't fully helpful,
as a rising tide lifts all boats anyway, and stocks with heavy
insider buying don't tend to outperform.
The same can be said for a falling market. Even the stocks
that have solid recent insider support can't avoid a market
There is, however, one market phase in which I focus more on
insider transactions: a sideways market.
When many stocks are stuck in a holding pattern, it's been my
experience that the select few that are supported by insider
buying often manage to break out on the upside. (I'm relying on
years of experience with these insider signals, not empirical
data, to support this assertion.)
It looks like we're in a sideways market once again. At a
recent 1,680, the S&P 500 Index is close to where it was in
late May. And the push/pull dynamic of a moderately growing
economy and tepid corporate profit growth may lead us into an
extended sideways market. In effect, there are too many reasons
precluding the market falling out of bed (strong balance sheets,
robust cash flow) or rising sharply (increasingly extended
That's why I'm watching the insiders more closely these days.
Here are some notable purchases that have popped up on my screen
recently. (All data courtesy of InsiderInsights.com.)
1. Accuride (
This company is notable for its concentrated stock ownership
among a handful of investment firms. Coliseum Capital, Cetus
Capital and Littlejohn Capital all own more than 10% of Accuride
(qualifying them as insiders). And recently, all three firms have
added to their stakes, acquiring more than 1 million shares
collectively since early June (at an average price of around
It's been a bumpy ride since Accuride's early 2010 IPO, and
shares have since fallen by half from its post-IPO trading range.
Demand for Accuride's truck brakes, wheels, bumpers and sets has
been slowly building out of the 2008 downturn, though the company
has been unprofitable throughout that stretch.
Looking back over the past half decade, this was a company in
need of an overhaul. Inventory of raw materials grew bloated,
quality concerns led to lost business, and Accuride's network of
factories was too large for the company's revenue base. New
management took the reins in 2011, shuttering a key factory and
improving quality control. The company now appears poised to move
into the black in 2014, as analysts anticipate earnings per share
) of around $0.60.
Insiders may be loading up on the turnaround prospects, and
these shares represent deep value: The enterprise value stands at
around $550 million, much less than the projected $800 million
2. NuStar GP Holdings (
In recent months, we've been focusing on companies with "rich
parents." These are master limited partnerships (MLPs) that can
profit from generous capital injections from the parent companies
that spun them off. For example, my colleague Elliott Gue cited
oil and gas pipeline operator
Well, insiders spot value at the "rich parent" right now. A
pair of directors bought 78,000 shares back in April (at an
average price of $30.75). There were additional modest purchases
over the summer, and in September, director William Greehey
bought another 50,000 shares. The twist? The recent buying
was done around $20, after shares had slumped badly.
The share price weakness is the result of a liquidity crunch
as the company isn't generating enough cash flow to support the
current dividend. Though investors are worried that the divided
may be cut, management recently told analysts that other options
will instead be pursued, such as asset sales or overhead cuts.
NuStar "stressed that a distribution cut is not actively being
explored currently," reported analysts at Goldman Sachs in Sept.
10 note to clients.
If that dividend is indeed safe, then investors are likely to
refocus on it, as it
currently yields 10.7%
. The insider-buying angle is intriguing, as these insiders also
share in the dividend, and if they had a view that the dividend
would soon be slashed, they'd be selling, not buying. On top of
that yield, shares have 15% potential upside to Goldman's $26
3. Lionbridge Technologies (Nasdaq: LIOX)
I recently profiled this low-priced stock, noting that a key
shareholders had been acquiring stocks in the open market in
previous months. Well, that shareholder, Glenhill Capital, is at
it again, making its biggest purchase yet.
In late September, Glenhill bought 175,000 more shares, at
prices far higher than previous purchases. Glenhill now owns more
than 650,000 shares of Lionbridge and clearly sees further upside
in the months ahead.
4. Swift Energy (
Insiders have been stepping up their buying at this oil and gas
driller as shares have fallen far from the 52-week high of
$19.69. A pair of insiders bought nearly $300,000 in stock (at an
average price of $11.75) in the past two months.
Swift has a solid geographic position in South Texas' Eagle
Ford Shale, but many of its key wells initially proved to have
disappointing levels of output. Those wells are now producing
better oil and gas flows, though investors are waiting to see how
that will impact cash flow -- a key consideration for a company
that has seen long-term debt rise from under $500 million in 2010
to more than $1 billion today.
Swift is expected to discuss asset sales (outside of the Eagle
Ford region) when third-quarter results are discussed Oct. 31. If
cash flows are indeed starting to strengthen, and the debt load
starts to fall (thanks to asset sales), then this beaten-down
energy driller may be poised for a rebound.
Risks to Consider: Insiders shouldn't be confused with
stock pickers. They don't always have a keen sense of whether
their shares are overvalued or undervalued. They instead should
just be seen as a barometer of business conditions at their
Action To Take -->
Insiders tend to be especially active when the market gets
choppy, so if this month's troubles in Washington pressure stocks
more deeply, you should devote more time to analyzing the moves
at insiders, many of whom have a clear sense of their own
company's health, regardless of broader economic