Profiting from insider moves can be quite tricky. This is
because insider transactions tend to affect the stock price quickly
-- first from insider buying and then from follow-on purchases of
investors as they try to ride along with these insiders. It's
rarely wise to hop on board if the stock has already made a nice
move, as short-term investors may soon be hopping off anyway.
Yet falling markets can change this dynamic. Share prices can
slump in the days and weeks after an insider purchase, giving
investors a chance to score an even better deal. Here are three
stocks now trading below the levels transacted by insiders…
1. Titan International (
TWI
)
Thanks to a string of recent acquisitions in Latin America,
Australia and Europe, Titan is now the world's largest manufacturer
of massive wheels and tires, the kind you'll find on huge mining
trucks carving coal and other natural resources out of the
mountainside. It's a fairly attractive niche. While most wheel or
tire makers have operating margins in the 2% to 3% range, Titan's
operating margins approached nearly 8% in 2011.
This past spring, Company Director Richard Cashin saw clear
skies ahead for Titan and purchased $10 million in stock at an
average price of $28.50. Talk about lousy timing: That worked out
to be the52-week high for the stock, which now trades below
$20.
Investors have been cool to mining-related stocks in recent
months, ever since
Caterpillar (
CAT
)
warned of a global slowdown in major mining and construction
projects. In effect, Titan is acyclical stock at the wrong end of
the cycle. But you can't ignore the value proposition for this
stock.Shares now trade for less than eight times projected
2013earnings forecasts of around $2.70 per share. When the cycle
moves back into favor, perhaps as we approach mid-decade, earnings
strength could approach $4 a share.
2. Fuel Systems Solutions (Nasdaq: FSYS)
Not all insiders work at a company as an officer or director.
They're classified as such if they simply own 5% or more of a
company. The SEC assumes these "beneficial owners" possess so much
information about the company that they must submit a public filing
every time they buy or sell company stock, just as company insiders
do.
After already achieving such status with companies as
Imax (Nasdaq: IMAX)
and
Westport Innovations (Nasdaq: WPRT)
, off-the-radarFund Manager Kevin Douglas is quickly becoming a
major investor in Fuel Systems Solutions as well. This company
makes engines that can run on compressed natural gas (CNG). In
fact, the next generation of
GM (
GM
)
pick-up trucks and vans will be using Fuel Systems' technology.
Douglas may have gotten too excited about the prospects for that
contract, snapping up nearly 100,000 shares in early October at an
average price of $18.50 each. Fuel Systems recently delivered a
weak quarter, as these GM vehicles haven't hit the showrooms just
yet. Shares have subsequently plunged below $14, more than 25%
cheaper than what Douglas paid for the stock. "Mr. Douglas has a
knack for making money in this space. He is also, however, a
long-term investor. The value of his stakes in Westport
Innovations and Fuel Systems have gyrated wildly while he's
been in them. He does not sell them high while continuing to buy
when lows reappear," noted Jonathan Moreland, who follows insider
moves at Insiderinsights.com. Chances are the recent fall in the
stock will simply entice more buying from this patient insider.
3. NuStar Energy (
NS
)
Roughly two months ago, four company directors at NuStar acquired a
collective 494,000 shares at an average price of $48 a piece. They
likely expected investors to warmly greet an imminent announcement
that would help reshape this energy company's business. Well, that
announcement came during the second week of November and investors
were hardly pleased, pushing shares to a52-week low below
$40.
NuStar's big announcement: It plans to sell major refinery and
connected pipeline systems in the Texas cities of San Antonio and
Elmendorf, and redeploy the proceeds (along with borrowed funds) to
acquire a gas pipeline and storage system in the Eagle Ford shale
region of Texas. Management figures these moves will tighten the
company's focus on core oil and gas distribution, and away from
non-core businesses such as oil refining and marketing. Investors
figure management might be too aggressive with its moves, at least
judging by the share price reaction.
The question is whether thedividend will need to be trimmed --
at least until these deals are digested. NuStar hopes to announce a
buyer for the refinery in coming weeks, at which time we'll have a
clear read on thecapital structure and the ability to support the
current dividend. Analysts at Credit Suisse predict that the
current $4.38 a share dividend payout will stay intact (equating to
a double-digitdividend yield ). If they're right, then shares may
quickly rebound into the upper $40s.
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Risks to Consider:
Insiders tend tospot value over the long haul, but are
notoriously badmarket timers, so these stocks may take a while to
fulfill the promises insiders have made.
Action to Take -->
Analyzing insider transactions is one of several steps you need to
consider before making a decision to buy. If the company appears to
be in strong financial shape and possess solid long-term prospects,
then the insider buying activity is simply affirmation of abullish
investment thesis.