Is it Time to Acquire 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 of investors since nobody has proven to have a method that is truly infallible. However, one method that has proven to be useful in determining whether or not a stock is moving higher is insider buying. This is due to one simple reason: insiders accumulate shares, just like the common investor, to make more money. Furthermore, it's arguable that insiders are best able to analyze the company because they are 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 while aligning their interests with all other investors. The following are recent stocks with strong insider buying for the prudent investor. These should only be viewed as a starting point before committing any investment capital.
Kinder Morgan (NYSE: KMI) is a diversified oil and gas company focused primarily on energy transportation and storage. The company is well established, with a revenue base the past twelve months exceeding $9 billion and a market capitalization exceeding $35 billion. The stock is range-bound and currently roughly 15% below its 52-week high. Nonetheless, board director Fayez Sarofim sees more upside ahead, buying 600,000 shares collectively on Oct. 25-26 at an average price of $34.76, which equates to an impressive $20.85 million worth of stock. This is a strong vote of confidence, which is always encouraging, but the fundamentals do not seem to serve as a tail wind in the immediate future.
The company has badly missed consensus earnings estimates the past three quarters, while trading at some comparatively lofty valuations. The 4%+ dividend yield is encouraging, along with the fact that management has been able to increase that the past year. But I do not see how that can continue, since the dividend payout is considerably above the 80% payout ratio threshold. If looking to be in energy, I would rather be invested in a diversified energy giant like Chevron (NYSE: CVX). The company has a great 3.3% yield, but at just a 25% payout ratio one can be confident that it is not only secure, but likely to increase. Add in the fact that the company has much more reasonable valuations and a more diversified revenue stream and I think Chevron should serve the long-term income investor well.
Navistar International (NYSE: NAV) manufacturers and sells a variety of vehicles, including buses, military trucks, and recreational vehicles. The company has not been performing well the past year as concerns over the massive $4 billion plus debt load, among other issues, have caused angst among investors, pushing the stock down approximately 50% sitting near its $18.17 52-week low. However, on Oct. 24, major investor Dr. Mark Rachesky bought a sizable 1,598,000 shares through a follow-on stock offering at $18.75 equating to just under $30 million worth of stock. This is clearly a belief that the stock will move higher going forward.
While I don’t like the excessive debt and lack of a dividend payment, management is taking steps to cut costs, such as the closure recently of its Garland, TX plant which is expected to be cash flow positive in the first year. Additionally, with a revenue base at approximately $14 billion, any minor margin improvements, such as these cost reductions, will lead to some immediate and sizable gains going forward. I’d put this as a speculative buy, but if you're looking more for a consistent, comparable company, I think PACCAR (NASDAQ: PCAR) is worth considering. The company has far better margins, a more manageable debt load, and a nice 1.8% dividend yield. In addition, it has exceeded consensus analyst estimates the past four quarters, indicating that the company is hitting on all cylinders (no pun intended).
I’d like to also say I appreciate you reading my thoughts and reiterate that these are just the views of the blogger and should not serve as a substitute for any professional financial advice or counsel in general. Respectful comments and questions are always welcome below on the comment board.
Wiseinvestors has no positions in the stocks mentioned above. The Motley Fool owns shares of Kinder Morgan and PACCAR Inc. Motley Fool newsletter services recommend Chevron, Kinder Morgan, and PACCAR Inc. 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.