Insider Alert: Should We Buy These Stocks as Well?
Ali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Investors are typically always on the hunt to find stocks that outperform the general market. In these turbulent times, that is much easier said than done. However, one screening tool that has proven to be effective in determining whether a stock is moving higher is insider buying due to one simple reason: they buy stocks, just like us, to make more money. In addition, they arguably have the best view of the company being a part of the day-to-day operations and/or have a large investment of their own which they like to see increase in value. Below are a couple stocks with notable insider buying.
Trash collector Republic Services (NYSE: RSG) recently had its stock hammered on a disappointing earnings report that came in 9.5% below consensus analysts’ estimates and disappointing guidance for the rest of 2012. One would reasonably think that this would have most investors wary of buying more shares, but major shareholder Cascade Investment LLC (which happens to also be billionaire Bill Gates investment vehicle) bought another 1,102,700 shares on Apr. 30 bringing its total ownership to over 66 million shares or approximately 18% of the total shares outstanding. Cascade obviously is rather bullish on RSG and one can see that the continued population growth and economic activity in the coming decades will reasonably lead to more trash generation that needs to be serviced through companies like RSG and fellow giant Waste Management (NYSE: WM). Both had an earnings scorecard that didn’t meet analyst estimates, but they both have reasonable valuations and impressive dividend yields that look poised to continue as they both have payout ratios below 70%. I’d split a position between the two if looking to invest in the waste management industry as that eliminates specific company risk while having ownership in two well-run companies.
Opko Health (NYSE: OPK) is a diversified medical company run by Chairman, CEO, and major shareholder Dr. Phillip Frost. On May 2, Dr. Frost bought a sizeable 80,000 shares bringing his total ownership of OPK to approximately 127 million shares when factoring in his 15.49 million shares held in the Frost Gamma Investments Trust. This amounts to approximately 43% of the total shares outstanding as of the most recently reported quarter. He has repeatedly shown his bullishness in the stock over the years through consistent insider purchases and a large ownership stake that keeps growing. While I like the strong vote of confidence, the fundamentals aren’t exactly foolish with its long string of losses and sky-high valuations. I definitely wouldn’t short the stock though and still may in fact go long eventually since this consistent insider purchasing is very rare, but I personally have no idea on the viability or probability of OPK’s products and see this purely as an investment in Dr. Frost if one chooses to buy shares.
An investment that makes more sense to me is one like Johnson & Johnson with its consistent 3.5% yield and AAA credit rating. Moreover, management has shown once again that they reward shareholders by boosting the quarterly dividend 7% marking the 50th consecutive year JNJ has increased its dividend. That means since 1962 and through all the economic, political, and various other vicissitudes, JNJ has not only maintained a dividend, but increased it, which gives me strong confidence going forward that its a solid long-term "foolish" holding.
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Prohomes has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson and Waste Management. Motley Fool newsletter services recommend Johnson & Johnson, Republic Services, and Waste Management. 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.
