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 will move 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'd like to see increase in value. Below is a stock with strong insider buying.
Pharmaceutical and diagnostics company Opko Health (NYSE: OPK) is a worldwide company with operations mainly in the United States, Chile, and Mexico. The stock has been essentially flat year-to-date, but over the past two years more than doubled, significantly outperforming the S&P 500. Nonetheless, Chairman, CEO, and President Dr. Phillip Frost sees more upside ahead buying an impressive 77,500 shares on June 28 followed by another 42,500 shares purchased on June 29. While this insider purchasing is certainly encouraging, the stock has some nosebleed valuations that would make any “Foolish” value investor cringe. If looking to get into the pharmaceutical and/or biotechnology arena, I’d rather look more towards a Pfizer (NYSE: PFE) or Amgen (NASDAQ: AMGN) where both sport consistent operating histories and attractive dividends. Pfizer currently has a very attractive 3.8% dividend yield and forward P/E under 10x. Moreover, with a payout ratio at 66% and generating over $18.5 billion in free cash flow the past twelve months, look for management to continue raising the dividend. Amgen sports a healthy 2% dividend itself while also trading at relatively cheap 11x forward P/E. With an exceptionally low 21% payout ratio and strong free cash flow as well, look for Amgen to also raise its dividend in the coming quarters.
Sonus Networks (NASDAQ: SONS) is involved in providing voice and multimedia solutions worldwide. It has the dubious distinction of being a former high-flying technology company back in the late '90s when the stock price hit approximately $80 per share. Now of course it’s a far cry from that, trading near $2. But major shareholder Empire Capital Management sees brighter days ahead. On June 22, the firm bought a massive 600,000 shares equating to just over $1.25 million worth of stock. Looking deeper at Sonus, what immediately stands out is the pristine balance sheet with no debt, very little in the way of intangible and goodwill assets, and perhaps most enticing is its approximate $1.15 in net cash. That means at the current $2.09 share price, the company is trading at roughly 55% its net cash position. Moreover, the company has met or exceeded consensus analyst estimates the past three quarters which is always a good sign. On the down side, the company has been continuing to burn cash and doesn’t pay a dividend, despite the large cash position. Moreover, the company is in the very competitive communication equipment industry which is dominated by far stronger companies such as Cisco Systems, Juniper Networks, and Qualcomm. Nonetheless, I believe that Sonus looks to have somewhat turned the corner and if it can continue the improving performance, investors should be greatly rewarded.
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 Pfizer. 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.