Why is This Insider Buying Shares of Dole?
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the old adage goes, there are many reasons why a corporate insider would sell shares of their company’s stock, but only one, very bullish reason why they would buy. In a financial world filled with uncertainty, insider trading activity can provide a good starting point for further research, and has proven to be a solid market-beating strategy time and time again. Over the past decade, a range of accomplished scholars – from Lakonishok in 2001 to Metrick in 2003 – have found that, on average, investors who follow the buying behavior of insiders can beat the market by 6.4% a year, risk-adjusted. Though it does not have a flashy name, such as the Magic Formula or CAN SLIM approaches (read more about these here), insider trading is definitely a solid metric to track.
Over the past two weeks, one stock that has seen a round of purchasing activity is Dole Food Co (NYSE: DOLE), which has already returned 44.4% in 2012. The company’s owner and Board Chairman David H. Murdock has bought a total of 2.1 million shares worth more than $25 million. These transactions have increased Murdock’s total holdings of DOLE by 4.8% to 42.1 million shares. Since this activity began on July 24th, the stock has appreciated by a whopping 28.8%, despite coming on the heels of disappointing Q2 data where revenue (10%) and EPS (21.5%) were down.
Since going public in the fall of 2009, Dole’s revenues have expanded rather slowly, averaging 0.9% growth per year, though this has outpaced the packaged food industry average (-11.2%) and competitors like Fresh Del Monte Produce (NYSE: FDP) at 0.6% and Chiquita Brands (NYSE: CQB) at -4.5%, but below the likes of Lancaster Colony (NASDAQ: LANC) at 3.6%. Weighed down by weak operating (2.5%) and net (0.5%) margins and a struggling fresh fruit segment, Dole’s year-end bottom line is expected to shrink to $1.22 a share, down 6.3% from the $1.30 it reported in 2011. Now, the Street is predicting a 2013 EPS of $1.43, which would represent a 17.2% growth next year.
From a valuation standpoint, shares of DOLE are currently trading at a price-to-earnings ratio (30.4X) above the industry norm (20.8X) and the likes of FDP (12.0X), CQB (12.4X), and LANC (19.2X). When earnings growth is factored into the equation, however, we can see that the stock sports a PEG ratio of 1.0, on the border of being undervalued. Moreover, Dole’s price-to-book ratio is at 1.2X, below the industry average (3.7X) and slightly off its own post-IPO average (1.3X). In fact, the company’s book value has historically traded at a 39% discount to that of the S&P 500. This year, they are slightly cheaper, trading at a 43% discount.
Going forward, fairly valued shares of DOLE can reach $20 a share, though this upside is likely to be seen by the summer of 2013 at the earliest. If the company can maintain its 2012 earnings targets, this should go a long way toward affirming investors’ beliefs that double digit EPS growth can be seen next year. WealthLift’s Sentiment Index rates Dole as a moderate buy, with 66.7% of the community’s users placing an “overperform” rating on the stock. The company reports its 3rd quarter results in early October; in the meantime, ardent investors can check up on this and other trading ideas at WealthLift INSIDER.
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