Should We Follow Insiders And Buy These Stocks?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the financial markets continue to be volatile, finding ways to outperform the market is much easier said than done. However, one screening tool that has proven to be effective in determining whether a stock is moving higher is insider buying due to one simple reason: they buy stocks, just like us, to make more money. In addition, they arguably have the best view of 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. Below are a couple stocks with strong insider buying.
Virtualization and cloud-infrastructure giant VMware (NYSE: VMW) is a behemoth with a market capitalization nearing $40 billion and revenues at approximately $4.5 billion. The stock has been range-bound throughout the year, but currently sits well below its $118.79 52-week high perhaps creating a buying opportunity. Major shareholder EMC (NYSE: EMC) seems to think so filing an SEC Form 4 on October 23 showing that they collectively purchased from October 19-22 238,905 shares at an average price of $83.69 equating to just under $20 million worth of stock.
The company operationally has performed well exceeding consensus analyst estimates in each of the past four quarters while continuing to sport healthy margins. However, the company continues to have some lofty valuations and does not pay a dividend making this more of a speculative holding. While EMC is trading at a cheaper valuation compared to VMware, it too does not pay any dividend and is not showing nearly as much sales growth. I’d put these two on the radar for now and see if the overall picture improves before acquiring some shares.
Hairstyling and hair care salon Regis (NYSE: RGS) is a worldwide company operating under a variety of names, including its namesake, Supercuts, and Mastercuts. The stock had been performing well, until the company in late October came in with a less than stellar earnings report causing the stock to plunge roughly 15%. Nonetheless, major shareholder and board director Daniel Beltzman saw it as a buying opportunity. Mr. Beltzman bought collectively 1,975,002 shares from October 31 through November 2 at an average price of $16.53 equating to over $32.5 million worth of stock. While this large insider purchase is encouraging, the massive earnings miss is a cause for concern along with the fact that this industry does not fare too well in these depressing economic times as more people decide to delay a haircut and/or not buy the extra shampooing, hair coloring, and other luxurious services.
With most other hair salon companies being private and not allowing us to have a direct alternative to Regis, investors may want to look at personal products giant Procter & Gamble (NYSE: PG) as an alternative. The company has a diversified personal products lineup, including well-known hair products shampoo and conditioner Head & Shoulders, while paying a very nice and secure 3.3% dividend yield. The company is definitely not a direct substitute to holding Regis, but Procter shares a lot of the same economic drivers as Regis, while paying us a superior yield while we wait for the economy to recover.
Wiseinvestors owns shares of The Procter & Gamble Company. The Motley Fool owns shares of EMC, Regis, and VMware. Motley Fool newsletter services recommend The Procter & Gamble Company, Regis, and VMware. 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.