Are These Stocks Worthy of Your Portfolio?
Ali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As many investors know, 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 couple of stocks with strong insider buying.
EXCO Resources (NYSE: XCO) is an independent oil and natural gas company based in Dallas, Texas which as of December 31, 2011 had proven reserves of approximately 1.3 trillion cubic feet of gas equivalent and operated just under 8,000 wells. As crude oil and especially natural gas the past 52-weeks has been depressed, so has EXCO’s stock, down approximately 60% from its 52-week high. However, major shareholder WL Ross & Co. sees a rebound in the stock by buying collectively from June18-20 a large 1.3 million shares equating to approximately $9 million worth of stock. The company has come down to a more favorable valuation trading at just over 1.1x price-to-book. The stock also offers a nice 2.4% dividend yield paying investors while they wait for natural gas to eventually rebound. However, the risks are definitely apparent as the dividend could very well be cut as the company burned through over $1 billion in free-cash-flow this past year and sits on approximately $2 billion in debt. I’d keep EXCO on my radar for now and see if management can find some ways to address the debt and worrisome cash position before buying stock myself.
Opko Health (NYSE: OPK) is a pharmaceutical and medical appliances company looking to help treat a variety of cancers, disease, and ailments with operations primarily in the United States, Chile, and Mexico. The stock has done well the past year up approximately 35%, while the S&P 500 has been essentially flat, but Chairman, CEO, and major shareholder Dr. Phillip Frost sees more upside ahead. On June 14, he bought a sizeable 85,000 shares in the open market and followed that up the next day with an impressive 200,000 share purchase. While the stock has had an impressive run and the insider purchases are encouraging, Opko isn’t for the faint of heart as the company trades at some lofty valuations and pays no dividend. If looking to get into the pharmaceutical/medical field, I believe a well-paying, consistent dividend paying stock like Merck (NYSE: MRK) trading at a reasonable valuation will serve the long-term investor better. Merck pays a very nice 4.2% dividend yield while trading at a reasonable 17.5x trailing P/E and 11x forward P/E.
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. 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.