Insider Siren: Should We Follow the “Whales” Into 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.
Every person involved in the stock market will tell you time and time again that being able to outperform the general market is no easy feat. In fact, 80% of fund managers year in and year out underperform the S&P 500 and has people wondering what is a strategy worth using? One strategy that has proven to be effective over time in determining whether a stock is moving higher is insider accumulation due to one simple reason: insiders buy shares, just like us, to make more money. Furthermore, they have an enviable vantage point of the day-to-day operations of the company and/or have a large investment of their own which they like to see increase in value. The following are a few stocks with notable insider purchases and can serve as a nice stating point in your investment research:
Aegerion Pharmaceuticals (NASDAQ: AEGR) is a biopharmaceutical firm focused on the development of treatments for fatal diseases, including its leading Phase III lipid disorder treatment drug called homozygous familial hypercholesterolemia (“HoFH”). The company’s stock has been absolutely great sitting right near its 52-week high of $28.96 and up approximately 100% year over year. One may think the company is overvalued, but major shareholder Perceptive Advisors thinks otherwise snapping up 50,000 shares on January 18 equating to almost $1.4 million worth of stock. The company operationally has not been doing well missing badly consensus analyst estimates the past four quarters while continuing to burn cash. However, as is the case with most biopharmaceutical firms, the company’s hopes are pinned mainly to a potential blockbuster drug, which in this case is HoFH as described above and investors should only look at this company as a speculative option in my opinion.
TheStreet (NASDAQ: TST) is most likely known for being co-founded by ubiquitous CNBC host and commentator Jim Cramer (“booyah” Jim if you’re reading this) who still remains as one of its largest shareholders. Unfortunately, the stock has seen much better days down over 95% from its all-time “dot com bubble” highs in late 1999. Nonetheless, major shareholder William Martin sees more value ahead buying collectively from January 18-23 140,838 shares on the open market, which is quite significant when we see that the total average daily volume on the stock is approximately 75,000 shares. Looking closer, the company has an impressive net cash position of approximately $1.10 per share with no debt and trading at a reasonable 1x price to sales.
On the flip side though, the company has missed consensus analyst estimates the past two quarters and suspended its long-running dividend which is real disappointing to this “Fool.” I think though with such a large net cash position and strong insider buying, this company is worth a look as a speculative play. If looking for a far more established player in this space, the world-renowned Google is worth a look, especially after its most recent stellar earnings report. The company has an impressive net cash position exceeding $40 billion while generating well over $10 billion in free-cash-flow annually. Moreover, with strong returns on equity exceeding 16.5% and a fantastic management team at the helm, look for the company to continue marching higher.
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 position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!