Insider Siren: Should We Buy 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.
As virtually every investor comes to find out over their career, finding ways to outperform the market is much easier said than done. However, one screening tool that has shown to be relatively 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. Moreover, insiders arguably have the best view of the company by 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 recently heavy insider purchases.
Capital One Financial (NYSE: COF) is a diversified financial services company undoubtedly most recognized for its ubiquitous “what’s in your wallet?” credit card commercial. While most financial stocks recently have been trending lower and well off their 52 week highs, Capital One sits right near its $58.69 52-week high. Nevertheless, major shareholder and board director ING Groep NV sees more upside ahead adding to its holding on July 23 39,948 shares at $54.82 equating to almost $2.2 million worth of stock. This vote of confidence is strong and the valuations with Capital One look appealing trading at just .85x price to book and comparatively strong returns on assets and equity. However, the company currently yields a meager .4% and has kept it there for years as a result of the financial crisis in late 2008-early 2009 which is discouraging. Nonetheless, I think with Capital One’s strong management team and free cash flow, the company should continue to perform relatively well and be a stock worth putting on our radar.
Cracker Barrel Old Country Store (NASDAQ: CBRL) is a major restaurant operator with over 600 company-owned locations in 42 states. The company had some sizable insider buying from July 23-25 by major shareholder Sardar Biglari, who also runs fellow Cracker Barrel major shareholder investment vehicle, Biglari Holdings (NYSE: BH), accumulating collectively 48,244 shares equating to just under $2.9 million worth of stock. This is a strong vote of confidence by Biglari, however, recently CBRL management just initiated a poison pill to prevent any shareholders from accumulating more than a 20% stake, so at least for the moment, shareholders should put less of a chance towards a take-over premium. However, the company still has a very nice 2.7% dividend yield, impressive returns on equity nearing 29% the past twelve months, and an outstanding activist investor clearly seeing value in the shares. I think CBRL is worth a look or investors can indirectly benefit by putting money into BH.
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 owns shares of Biglari Holdings. Motley Fool newsletter services recommend Biglari Holdings. 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.