Should We Follow the Smart Money into These Stocks?
Ali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In this volatile and unsettling market, 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 which they like to see increase in value. Below are a pair of stocks with strong insider buying.
Endeavour International (NYSE: END) is an independent oil and gas company based in Texas with holdings in diverse places such as Montana and the United Kingdom. The stock has been volatile the past year (which isn’t surprising when we see how choppy crude oil and natural gas has been during the same timeframe) and currently not far off its $5.73 52-week low. However, major shareholder GMT Capital obviously sees value, buying a massive 650,000 shares on June 13, bringing their ownership to just under 5.1 million shares. This approximate $5 million dollar stock purchase is encouraging, but the stock still looks relatively expensive trading at over a 2.2x price-to-book. Also it pays no dividend, and shows sub-par returns. If looking to get into the energy space, I believe a high quality name like Chevron (NYSE: CVX) serves as a better investment for the long-term investor paying a nice 3.5% dividend yield, trading at a more reasonable 1.5x price-to-book, and showing a comparatively healthy return on assets of 12% and return on equity of 23%. Moreover, CVX has a much more diversified revenue base through its various operations and subsidiaries.
Navistar International (NYSE: NAV) is involved in making commercial and military trucks, buses, and various other related vehicles and service parts. The company has been in the news lately as a strong takeover target due largely to the slumping stock price sitting far below its $58.50 52-week high. Nonetheless, major shareholder Dr. Mark Rachesky bought a large 160,000 shares on June 13 equating to approximately $4.5 million worth of stock. The company on the surface looks real cheap trading at a paltry 1.5x price-to-earnings and .1x price-to-sale, however, buyer beware as the company is looking to do seemingly anything it can not to unlock shareholder value, including instituting a poison pill defense. I’d recommend staying away from the stock at this time and letting the various hedge funds and Carl Icahn’s of the world sort out this mess as the massive $4.5 billion debt load is another cause of concern for any “Fool.”
As always, respectful comments and questions are always welcome on the message board below and please know any viewpoints are simply just the opinion of the blogger. I always strongly recommend every investor to do follow-up research and due diligence for the sake of their financial health.
Prohomes has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Chevron. 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.