Do These Stocks Pass the Test?
Ali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In these unnerving times (for that matter, all the time), finding ways to outperform the market 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 that they like to see increase in value. Below are a pair of stocks with strong insider buying.
Star Gas Partners (NYSE: SGU) essentially is a home heating oil distributor and services provider in the United States. The stock performance has not been good the past 12 months and has it sitting near its $3.65 52-week low. However on May 10-11, major shareholder Kestrel Energy Partners bought collectively 170,000 shares, bringing its total ownership to over 12.5 million shares or approximately 20% of the total shares outstanding.
This is a nice vote of confidence and the company looks tempting trading at just .9x Price/Book and .25x Enterprise Value/Revenue. However, the company has, in fact, a negative net tangible book value as the balance sheet has just over $265 million in goodwill and intangible assets along with a lukewarm return on assets and equity. I’d rate this as a hold for the time being as the company has its work cut out for it and the future results are murky, however, the relative cheap valuations and great insider buying make me somewhat bullish.
Opko Health (NYSE: OPK) is a diversified medical company run by Chairman, CEO, and major shareholder Dr. Phillip Frost. On May 11, Dr. Frost bought another 100,000 shares, bringing his total ownership of OPK to over 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 (NYSE: JNJ) with its consistent 3.8% yield and AAA credit rating.
As always, respectful comments and questions are welcome below on the message board.
Prohomes has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. 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.