3 Beaten-Down Stocks Insiders Are Buying
Martin Shkreli is having a very bad month.
The founder of biotech roll-up firm Retrophin (Nasdaq: RTRX ) has spent nearly $3 million of his own money to acquire company stock over the past few months, culminating in a $500,000 purchase in early April. But like so many other investors, Shkreli had no idea that biotech stocks would suddenly crater.
Those purchases are now deeply underwater.
#-ad_banner-#But this CEO's loss may be your gain.
With shares falling nearly 40% this month, investors have a chance to dig deep to see if there is value in these shares. Retrophin has acquired a series of development-stage biotech firms, and Shkreli anticipates rising revenue streams in 2014 and 2015 from the acquired pipeline. A blogger on Seeking Alpha raised some legitimate concerns , but they were expressed when shares were still trading at $20.
Other companies have also seen solid recent insider buying (data provided by InsiderInsights.com), which include:
|1. Intrexon (NYSE: XON )|
This is another biotech firm where an insider's moves were
poorly timed. Senior Vice President Gregory Ian Frost
acquired more than $2 million in stock in early March,
right before the entire sector skidded off the road.
I profiled Intrexon in October 2013 , noting that the company had developed a set of tools that enable medical researchers to better identify and alter gene mutations. Shares initially surged after my look at the company but have been in freefall recently.
Unlike many biotechs, this is a company with real revenue streams. Sales are expected to more than double this year to around $60 million and rise more than 50% in 2015 to around $95 million.
To be sure, the current $1.9 billion market value bears no relation to the current fundamentals, and investors are instead asked to take it on faith that the eventual revenue opportunity can be significantly larger. But such faith is in short supply in the biotech segment these days.
|2. The Tile Shop (NYSE: TTS )|
While investors have made great gains with flooring firm
Lumber Liquidators (NYSE:
-- which has risen more than 500% over the past five years
-- they have overlooked this home improvement rival.
The Tile Shop sells flooring tiles and stone products used in indoor and outdoor environments. The company's expansion, which has built the store base to 90 locations, has helped sales to grow from $150 million in 2011 to $230 million last year.
Despite that growth, share prices haven't followed suit. An ethics scandal dogged the company last year, and once the results of an internal investigation were announced in late January, shares slid sharply and have yet to recover. In response, three company directors acquired more than $2 million in stock in late winter at an average price of $15.40. Shares now stand below $14.
Despite the noisy headlines, this remains as a solid growth story, as same-store sales are expanding at an impressive pace. Analysts anticipate sales growth of at least 20% both this year and next, and in contrast to Lumber Liquidators' much larger installed store base, The Tile Shop appears to have ample room for expansion before it saturates the market.
|3. Novavax (Nasdaq: NVAX )|
I profiled this stock last week
as part of my look at cutting-edge vaccine developers.
At the time, I noted that shares had seen stronger insider buying in the $4.30 range. Along with other biotechs, shares have quickly plunged to below $3.50, or roughly half of the 52-week high. It bears repeating that little has changed for this and other biotech companies in the past few quarters in terms of drug development progress.
But investors' moods surely have. At this time, it is a waiting game for all of the sellers to finish what they are doing, so rebound buyers can get into these stocks at what are now much lower prices.
Risks to Consider: Each of these stocks is trading for even less than what insiders paid, which highlights that insiders' buys are notoriously ill-timed. So don't view their actions as providing any sort of floor for their stock.
Action to Take --> Though insiders tend to have miserable short-term track records, they have solid long-term track records. That's why it pays to keep watching their actions to identify potential rebound candidates.