Insider Siren: Should we Accumulate These Stocks 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.
The stock market and investing in general has its way of humbling even the best investors as nobody has proven to have a method that is truly infallible. However, one method that has proven to be useful in determining whether a stock is moving higher is insider buying due to one simple reason: insiders accumulate shares, just like the common investor, to make more money. Furthermore, insiders arguably are able to best analyze the company being a part of the day-to-day operations and/or have a large investment of their own which they like to see increase in value aligning their interests with all other investors. The following are recent stocks with strong insider buying and for the prudent investor should only be viewed as a starting point in your investment research before committing any investment capital.
Davita (NYSE: DVA) is a specialized health services company that focuses predominately on kidney dialysis services and outpatient care throughout the United States. The company is well established with a market capitalization exceeding $10 billion and revenues exceeding $7.5 billion over the past twelve months while the stock sits right near its $111.34 all-time closing high. One would think that the stock looks fully or even over-valued at such lofty levels, but world-renowned and “Fool “favorite investor Warren E. Buffett thinks otherwise. His investment vehicle, Berkshire Hathaway (NYSE: BRK-B), filed an SEC Form 4 on October 1 showing that between September 26-28, Berkshire purchased collectively an impressive 282,403 shares totaling over $28.8 million worth of stock. This is a strong vote of confidence from arguably the greatest investor in history and when one adds in the fact that Berkshire and its subsidiaries were already the largest shareholder in Davita and now own collectively approximately 10.2 million shares, or approximately 11% of the total shares outstanding, one should take a closer look.
The company has exceeded consensus earnings per share estimates the past four quarters which is always encouraging and over the last twelve months has had a great return on equity of 23.2%, while churning a very healthy $700 million in free cash flow. However, while Davita is enticing, I believe investors may be better served in Berkshire Hathaway as you get exposure to Davita while also getting the expert stewardship of Warren Buffett. Add in the fact that Berkshire gives you revenue exposure through the dozens of other companies it owns and is trading at a reasonable 1.2x price to book value and I think it should perform relatively well.
Opko Health (NYSE: OPK) is a diversified medical and biotechnology firm focused on alleviating everything from Alzheimer’s disease to pancreatic cancer . The stock has not been worth writing home about of late as it has been drifting lower for the most of the year and not far from its $4.00 52-week low. However, Chairman, CEO, and President Dr. Phillip Frost seems to believe that a bottom may have been found buying on October 1 a sizable 212,500 shares at an average price of $4.17. While this is a nice vote of confidence from the highest ranking officer, the current fundamentals have me queasy about jumping in with him as the company is bleeding cash and only generating $31.5 million in total revenue the past twelve months. Being the more conservative investor that I am, I’d look more towards a consistent medical company, such as Abbott Laboratories (NYSE: ABT), which sports a long history of consistent dividends and a stable revenue base. Moreover, with its attractive 2.9% dividend and relatively low 63% dividend payout ratio, look for the dividend to continue to be secure.
Wiseinvestors has no positions in the stocks mentioned above. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services recommend Berkshire Hathaway. 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.If you have questions about this post or the Fool’s blog network, click here for information.