Three Good Stocks to Consider with Notable CFO Buys
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Chief Financial Officer (CFO) is an important position in a corporation. The CFO is responsible for financial planning and financial risk management for a company. As it can be considered as a financial gatekeeper, the majority of CEOs need CFOs advice on a corporation’s strategy. In the stock market, insiders’ actions are an important signal for investors to buy or sell stocks in the company. Because of its importance, CFO buys/sells might indicate the potential strength/weakness in a corporation. Investors might follow recent CFO buys as a good start for screening potential opportunities. Here are the top 3 companies with notable CFO buys since October:
MPLX LP (NYSE: MPLX) is a fee-based limited partnership, which was established by Marathon Petroleum Corporation (NYSE: MPC). It generates revenue by transporting and storing oil and hydrocarbon products through its pipeline and tank farms for fees. It was listed in October and raised more than $350 million by selling 17.3 million units at an offering price of $22 per unit. Insiders have accumulated its stocks at the IPO price, including the CFO and the Chairman of MPC.
In 2011, it generated $352 million in revenue and $94.3 million in profits. However, MPC has accounted for 80% of the total revenue. MPC also owns 75.1% in MPLX and all incentive distribution rights in the partnership. Currently MPLX is trading at $27.53 per unit; the total market capitalization is $2.03 billion.
Cypress Semiconductor (NASDAQ: CY) is a provider of programmable systems on chip, touch screen solutions, peripheral controller for handsets, static random access memories, etc. Recently, its CFO and an independent director of the company have accumulated shares.
In 2011, two biggest customers were Avnet and Weikeng Industrial, accounting for 12.8% and 11.2% of total revenue respectively. Although Cypress Q3 earnings of $0.12 beat analysts’ estimate of $0.05 per share, it issued Q4 revenue guidance of $186-$192 million, well below analysts’ estimate of $204 million. In the last 3 years, Cypress stock has experienced a wild roller coaster. It was around $9.50 in November 2009, and it rose to $23.50 in February 2011. Cypress’ beta is 1.76. Currently, it is trading at $10.43 per share. The total market capitalization is nearly $1.5 billion. It is valued at 51.8x P/E and 6.2x P/B.
Mead Johnson Nutrition (NYSE: MJN) is a world leading company providing nutrition products for infants and children. It has 70 products in more than 50 countries globally, with two product categories: infant formula (59% of sales) and children’s nutrition (38% of sales). At the end of October and the beginning of November, the company's chairman and CFO bought more than $800,000 of the company.
Two main customers of the company are Wal-Mart and DKSH International. Those two customers accounted for around 12% of total revenue in the last 3 years. Over the past twelve months, it generated $3.8 billion in sales and $556 million in net income, with its EPS of $2.73. At the current price of $66.27, the total market capitalization is $13.45 billion. The market is valuing Mead Johnson at 24.3x P/E. Its shareholders’ equity just turned to be positive this quarter because of the negative additional paid-in capital, accumulated other comprehensive loss and high amount of treasury stocks. So the 500x P/B valuation does not make any sense.
My Foolish Take
Investors need to dig deeper to find suitable opportunities for themselves. Personally, I like MPLX and Mead Johnson. Because of the business nature, MPLX would get constant stable cash flow from its operation. However, the risk for this partnership is the business dependence on MPC. For Mead Johnson, the global footprint creates a wide moat for the company. It can make investors sleep well at night by holding the stock in a long run.
hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Cypress Semiconductor . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.