Are These Stocks That Should Be Bought?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
Insider buying has always been viewed as a strong bullish signal since these are the people with the best view of the company. If they are putting their money into buying more shares, chances are good the stock is poised to move higher. Of course, if it were that simple then every “fool” would blindly follow insider's every move. Let's take a look at a few stocks with notable insider buying to see if retail investors should follow suit.
Fast food giant Wendy’s (NASDAQ: WEN) had some impressive insider buying recently. Chairman, major shareholder, and billionaire Nelson Peltz effectively owns Trian Partners which collectively bought 2.625 million shares of WEN from Feb. 1-3 bringing total ownership to just under 80 million shares or approximately 20% of the total shares outstanding. Mr. Peltz has been notably bullish on Wendy’s for some time now and I can see some attractive valuations with the company trading at .55x P/S, .8x EV/S, 1x P/B, and nice 1.7% dividend yield. However, the company actually lost approximately $3 million in net income over the past 12 months, looking forward trades at a relatively pricey 21x forward P/E, has essentially a 0% profit margin and return on equity, while sporting a negative net tangible book value of approximately $.20/share. I would rather own fellow competitors McDonalds (NYSE: MCD) or Yum! Brands (NYSE: YUM) as I described recently here, which have a much superior operating history, currently higher dividend and future dividend growth, along with far more respectable profit margins and return on equities. MCD trades at cheaper 16x forward P/E, more attractive 2.8% dividend yield, and far better return on equity exceeding of 39%. YUM similarly trades at a less expensive 17x forward P/E, 1.8% dividend yield, and return on equity nearing 70%.
Oil and natural gas company, Exco Resources (NYSE: XCO), had some strong insider buying in January from WL Ross & Co. and it looks to have continued in February. The firm collectively on Feb.3-6 bought a big 865,000 shares pushing total ownership to over 7.5 million shares. The energy play looks to have some attractive valuations at a 15x trailing and forward P/E, .9x PEG, .9x P/B, just over 6x EV/EBITDA, and relatively attractive 2.1% dividend yield making it for me a solid long-term buy. Moreover, for those looking at diversification with their XCO position, Exxon Mobil (NYSE: XOM) is another energy stock worth holding for the reasons described here. XOM still trades at a cheap 10x trailing P/E, 9x forward P/E, .9x P/S, .9x EV/S, and 2.2% dividend yield.
Motley Fool newsletter services recommend McDonald's and Yum! Brands. The Motley Fool owns shares of Yum! Brands. Wiseinvestors has no positions in the stocks mentioned above. 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.
