Insider Alert: Should we Buy as Well?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Insider buying is always a strong indicator that a stock is poised to move higher since insiders buy for only one reason: to make more money. Moreover, they arguably have the best view of where a stock is headed being a part of the day-to-day operations and/or having a large sum of money at stake. Below are some stocks recently with sizeable insider buying and my take on whether they are “foolish” investments as well.
OPKO Health (NYSE: OPK) is a pharmaceutical and diagnostics company based in sunny Miami, FL which is a favorite vacation spot for this fool. More notably, Chairman and CEO Dr. Phillip Frost accumulated on February 22 a massive 500,000 shares on the open market bringing his total ownership to approximately 110 million shares or approximately 38% of the total company. The company, like many medical research companies, doesn’t have the most attractive financial fundamentals as they wait to find the next blockbuster drug. However, with the constant bullish buying by Dr. Frost and the positive partnerships and acquisitions OPK has been making recently, I think OPK could have upside, but doesn't meet a Foolish buy-and-hold approach.
Kronos Worldwide (NYSE: KRO) engages in the production and marketing of titanium dioxide pigments primarily in North America and Europe. On February 22, Chairman and major shareholder Harold Simmons bought an impressive 100,000 shares on the open market bringing his total ownership through all various entities to approximately 95 million shares or just over 80% of the entire company! Needless to say this has “fools” like us jump for joy when an insider puts his money where his mouth is and gives us great confidence that the company is poised to move higher in the near future. Add in the fact that the company trades at a relatively 10x trailing P/E, 9x forward P/E, 5.9x EV/EBITDA, and very nice 2.6% dividend yield and I feel comfortable saying KRO is a solid buy contender.
It was reported on February 22 through the SEC 4 form that Automotive retailing giant AutoNation (NYSE: AN) had a big 156,100 share purchase on Feb. 17 by major shareholder Cascade Investment, the private investment/holding fund of multi-billionaire Bill Gates. This brings the fund’s total ownership to over 14.1 million shares or approximately 11% of the total company. I believe AutoNation is a buy when I see it trading at a reasonable 18x trailing P/E, 14x forward P/E, .3x P/S, .6x EV/S, and .8x PEG, along with the heavy insider buying. It’s also worth noting that fellow billionaire and investment great Eddie Lampert owns approximately 40% as well through his various entities.
Alnylam Pharmaceuticals (NASDAQ: ALNY) is a biopharmaceutical company that had a large 93,023 share purchase on Feb. 21 by board director Paul Schimmel, substantially raising his total ownership to just over 250,000 shares. The company is sitting right at a 52-week high and been performing nicely. This is like OPK a potentially solid speculative buy as there has bullish insider buying and ALNY has a strong balance sheet with no debt and well over $5/share in net cash after its most recent follow-on stock offering of 1.125 million shares, however foolish investors should look to more fundamentally sound companies so I'd rather buy AN or KRO instead.
In conclusion, always remember that a Foolish investor simply looks at insider buying as a screening tool, but also looks at the fundamentals to see if they meet our buy and hold long-term investment strategy.
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