What are the Big Boys Doing?
is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While browsing through the Yahoo! Finance stock screener the other day looking for deals, American international Group(NYSE: AIG) kept catching my eye. Although the stock has had a tumultuous past, it appears that it might be a decent performer in the coming months. Eighty percent of the stock is held by insiders, and last month, they began purchasing large quantities of the stock at prices between $28 and $31 a share, according to the insiders transactions posted on Yahoo Finance. It appears that analysts predict growth over 10% in the next five years, according to the Yahoo Finance Screener.
Those are two characteristics I like to see when I buy a stock. A large percentage of insider owners, and insiders purchasing additional shares of the stock in volume at current prices. Insiders usually know much more about a stock than everyone else. During the recent Facebook (NASDAQ: FB) IPO, most of the top executives were not buying at $38 dollars a share because they did not feel the company was worth that much; as the companies ability to bring in revenue seems limited in spite of how much buzz the stock created.
One of the reasons that I was wary of purchasing Facebook was their high PE ratio. Of course, a high PE ratio does not always mean that a stock is a bad value. In fact, it could mean that many people are bullish on the stock which could indicate future upside. However, I generally like to buy stocks with low PE ratios because stocks usually soar for a limited period of time, and eventually level off or even decline. And that is without any detrimental information being released that would affect share price. Sometimes, it seems like the safest strategy is to buy when other people are selling and sell when others are buying. However, the "others" I am referring to are the masses, not the insiders. With that in mind, a low PE ratio is important to me, as well as a substantial ownership position in a company by those at the top.
Some stocks with a low PE ratio are quite volatile, like Exceed, (NASDAQ: EDS). This stock has an extremely low PE ratio, but over the past few weeks, it has frequently soared or plunged in excess of 30%. It does not have the characteristics of a long term investment. However, I will continue to watch it and may risk a little more capital in the next wave. I think an interesting strategy with a stock like this is to wait for the stock to hit a new low, buy a few shares, then let the stock soar, and sell out the original cost basis. So if a round lot is purchased at $1.80 a share, and it goes up to $2.45 a share, sell $180 worth of stock and keep $65 worth of stock. Then wait for the stock to plunge back down to $1.80 and keep repeating the cycle as long as possible.
I do not know about everyone else, but I like buying things on sale.
Purchased a Nov 12 31 AIG call last month
Owns shares of EDS
No positions in other stocks mentioned