Is Now the Time to Go Long These Stocks?
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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.
Sears Holdings (NASDAQ: SHLD) is a well-known department store comprised of both Kmart and Sears and at one point in history Sears was the largest retailer in the world. The company still has a very respectable revenue base of approximately $40 billion but that pales in comparison to the new top dog, Wal-Mart (NYSE: WMT), churning revenues the past twelve months in excess of $460 billion. Nonetheless, while Sears sits well-below its $85.90 52-week high, major shareholder, billionaire, and chairman Edward Lampert sees further upside buying on September 4 an impressive 2,399,824 shares at an average price of $52.75 equating to just over $126.5 million worth of stock. This strong vote of confidence is always encouraging and the market seems to agree as the stock shot up 10% the day after this September 5 SEC form 4 filing.
However, cautious investors must know that SHLD is a riskier stock to invest in as it sits on a comparably high $3.3 billion debt load, for years has had declining sales as the company wisely, in my opinion, shuts down under-performing stores and spins off its subsidiaries, such as Orchard Supply Hardware, and pays no dividend. Wal-Mart on the other hand pays a healthy 2.2% dividend yield that is consistently being increased, comes in with mid-single digit revenue growth, and returns on equity exceeding 20%. For the more aggressive investor, SHLD is worth putting on your radar as Mr. Lampert may very well soon take the company private and/or see brighter days ahead, while the more long-term conservative investor would be better served with WMT.
Sonus Networks (NASDAQ: SONS) is involved in providing voice and multimedia solutions worldwide. It too has the dubious distinction of being a former high-flying technology stock back in the late 90’s when the stock price was hitting 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. According to its August 27 SEC Form 4 filing, the firm bought a sizable 587,579 shares collectively from August 23-24 at an average price of $1.81 equating to just over $1.05 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 it having approximately $1.20 net cash. That means at the current $1.97 share price, the company is trading at roughly 60% 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 (NASDAQ: CSCO), which has a great yield of over 3%, consistently strong free cash flow, and a very well-respected management team. I'd be more inclined being the conservative, income-oriented investor that I am to add Cisco, but Sonus makes for potentially a nice speculative holding.
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 Qualcomm. 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.