Icahn upping his stake in this stock, should we?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of my favorite screening tools is to see stocks with notable insider buying. The reasoning is simple as insiders sell for many reasons (diversify one’s assets, pay for the new house, expensive trip with the family, unfortunate divorce settlement costs, etc.), but they buy only for one reason: to make more money. Therefore, these 2 stocks below caught my eye with their recent heavy insider buying.
WebMD (NASDAQ: WBMD) provides health information services through a variety of ways. The stock got absolutely slammed earlier in the week falling over 25% when it told investors it is not looking to sell itself anymore and its CEO abruptly resigned. However, major shareholder and multi-billionaire Carl Icahn upped his stake significantly from Jan. 10-12 buying another 545,587 shares collectively bringing his total stake to just over 6.2 M shares. I’m never one to bet against Mr. Icahn as he’s proven many times in the past that he has an eye for value and can unlock hidden shareholder wealth, but I don’t quite see the catalyst in WBMD. Generally I don’t invest in stocks when a senior manager has abruptly resigned, especially the CEO, as that’s usually an ominous sign. Moreover, the stock trades at a relatively expensive 18x trailing P/E, 42x forward P/E, 2.3x P/B, and 2.6x P/S, while not paying a dividend. I definitely wouldn’t go short as Icahn has the means to and prior track record to easily take this company private and/or unlock hidden value, but I don’t quite see the reason to go long at this juncture and will simply stay on the sidelines.
Hot Topic (NASDAQ: HOTT) is a specialty retailer geared more for the teenage to young-adult genre. The company recently projected that fourth quarter earnings should exceed prior estimates and looks to make things right as it has lost just over $11M in the past twelve months. Moreover, there was encouraging insider activity on Jan. 10 as two board directors, Steven Becker and Matthew Drapkin both bought an identical 33,200 shares. The recent positive pre-announcement coupled with HOTT trading at just .4x P/S and EV/S, a debt-free balance sheet with approximately $1/share in net cash, and 4% dividend make HOTT an enticing buy.
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