Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message| ()  

A study (pdf) titled "Predictive and Statistical Properties of Insider Trading" by James H. Lorie and Victor Niederhoffer reached the following conclusion:

This study indicates that proper and prompt analysis of data on insider trading can be profitable, although almost all previously published studies have reached the contrary conclusion. When insiders accumulate a stock intensively, the stock can be expected to outperform the market during the next six months. Insiders tend to buy more often than usual before large price increases and to sell more than usual before price decreases.

Intensive insider buying was defined by the following three criteria:

  1. The stock was purchased by three or more insiders within one month.
  2. The stock was sold by no insiders in the month of intensive purchasing.
  3. At least two purchasers increased their holdings by more than 10 per cent.

The stocks meeting these criteria outperformed the market by 9.51 per cent in the six months following the period of "intensive" purchasing.

In this article I will feature five stocks that met these three criteria of intensive insider buying during the month of November.

1. Lantronix (LTRX) is a global leader of smart, secure M2M communication technologies that simplify access and communication with and between virtually any electronic device. The company's smart connectivity solutions enable sharing data between devices and applications to empower businesses to make better decisions based on real-time information, and gain a competitive advantage by generating new revenue streams, improving productivity and increasing efficiency and profitability. Easy to integrate and deploy, Lantronix products remotely and securely connect electronic equipment via networks and the Internet. Founded in 1989, Lantronix serves some of the largest medical, security, industrial and building automation, transportation, retail/POS, financial, government, consumer electronics/appliances, IT/data center and pro-AV/signage entities in the world.

(click to enlarge)

Insider buys

  • Bernhard Bruscha purchased 42,926 shares on November 27-29 by TL Investment GmbH. TL Investment GmbH currently holds 6,115,342 shares of Lantronix. Lantronix has 14,576,639 shares outstanding which makes TL Investment GmbH a 42% owner of Lantronix. Mr. Bruscha has served as Chairman of the Board from June 1989 to May 2002 and from May 14, 2012 to the present. Bernhard Bruscha is also Managing Director of TL Investment GmbH.
  • Bruce Edwards purchased 5,000 shares on November 26 and currently holds 5,000 shares of the company. Bruce Edwards serves as a director of the company.
  • Hoshi Printer purchased 2,000 shares on November 14-23 and currently holds 3,000 shares of the company. Hoshi Printer serves as a director of the company.
  • Paul Folino purchased 10,000 shares on November 8-14 and currently holds 10,000 shares of the company. Paul Folino serves as a director of the company.

Financials

The company reported the first quarter fiscal year 2013, which ended September 30, financial results on November 1 with the following highlights:

Revenue $11.2 million
Net loss $0.4 million
Cash $10.5 million
Debt $0.7 million

Competition

Lantronix's competitors include Cisco Systems (CSCO) and Echelon Corporation (ELON). Here is a table comparing these companies.

Company LTRX CSCO ELON Industry
Market Cap: 24.20M 100.40B 128.64M 274.20M
Employees: 114 66,639 302 498.00
Qtrly Rev Growth (yoy): 0.00 0.06 -0.34 0.39
Revenue: 45.40M 46.68B 150.75M 255.14M
Gross Margin: 0.49 0.61 0.41 0.49
EBITDA: -819.00K 13.23B -3.49M 19.95M
Operating Margin: -0.03 0.23 -0.07 0.01
Net Income: -2.03M 8.36B -12.91M N/A
EPS: -0.17 1.55 -0.30 N/A
P/E: N/A 12.20 N/A 18.74
PEG (5 yr expected): -0.77 1.15 -0.53 0.95
P/S: 0.55 2.16 0.79 1.35

Lantronix is trading below the industry average P/S ratio.

My analysis

The stock is currently trading close to its 52 -week lows. There have been eight insider buy transactions and there have not been any insider sell transactions during the month of November. There is one analyst buy rating, 0 neutral ratings and 0 sell ratings with a average target price of $3.00. The company has a book value of $1.48 per share and a cash position of $0.72 per share. I would expect the book value to act like a support for the stock.

2. The Western Union Company (WU) is a leader in global payment services. Together with its Vigo, Orlandi Valuta, Pago Facil and Western Union Business Solutions branded payment services, Western Union provides consumers and businesses with fast, reliable and convenient ways to send and receive money around the world, to send payments and to purchase money orders. As of September 30, 2012, the Western Union, Vigo and Orlandi Valuta branded services were offered through a combined network of approximately 510,000 agent locations in 200 countries and territories. In 2011, The Western Union Company completed 226 million consumer-to-consumer transactions worldwide, moving $81 billion of principal between consumers, and 425 million business payments.

(click to enlarge)

Insider buys

  • Rajesh Agrawal purchased 2,000 shares on November 29 and currently holds 36,779 shares of the company. Rajesh Agrawal is President for Western Union Business Solutions [WUBS] where he is responsible for leading the continued growth and expansion of all WUBS products and services worldwide.
  • Solomon Trujillo purchased 11,800 shares on November 14 by Family Trust. Solomon Trujillo currently holds 3,497 shares directly and 11,800 shares by Family Trust. Solomon Trujillo serves as a director of the company.
  • Hikmet Ersek purchased 8,060 shares on November 9 and currently holds 303,383 shares of the company. Hikmet Ersek is President and Chief Executive Officer of The Western Union Company.
  • Dinyar Devitre purchased 23,800 shares on November 8 and currently holds 45,165 shares of the company. Dinyar Devitre serves as a director of the company.
  • Jack Greenberg purchased 8,000 shares on November 8 and currently holds 83,677 shares of the company. Jack Greenberg serves as a director of the company.

Financials

The company reported the third-quarter financial results on October 30 with the following highlights:

Revenue $1.42 billion
Net income $269.5 million
Cash $1.43 billion
Debt $3.43 billion

Outlook

The company expects the following outlook for 2012:

  • Constant currency revenue growth in a range of +4% to +5%, including a +4% benefit from the full year inclusion of TGBP
  • GAAP EPS in a range of $1.60 to $1.63, which compares to the previous outlook of $1.68 to $1.72
  • Cash flow from operations of approximately $1.1 billion, or $1.2 billion excluding anticipated tax payments of approximately $90 million relating to the IRS agreement announced on December 15, 2011

The company believes 2013 constant currency revenues may decline slightly and GAAP operating income may decline 10% to 15% from 2012 levels.

Competition

The Western Union Company's competitors include American Express Company (AXP) and Moneygram International (MGI). Here is a table comparing these companies.

Company WU AXP MGI Industry
Market Cap: 7.52B 62.56B 694.85M 267.85M
Employees: 8,000 62,500 2,136 900.00
Qtrly Rev Growth (yoy): 0.01 0.01 0.05 0.16
Revenue: 5.67B 29.42B 1.31B 189.65M
Gross Margin: 0.44 0.77 0.43 0.37
EBITDA: 1.67B N/A 272.36M 23.11M
Operating Margin: 0.25 0.24 0.15 0.07
Net Income: 1.24B 4.98B -66.42M N/A
EPS: 2.02 4.32 -0.93 0.13
P/E: 6.24 12.95 N/A 21.46
PEG (5 yr expected): 0.78 1.15 0.81 1.06
P/S: 1.33 2.13 0.54 1.68

The Western Union Company is trading below the industry average P/E ratio.

My analysis

The stock has a $4.5 price target from the Point and Figure chart. There have been five insider buy transactions and there have not been any insider sell transactions during the month of November. There are three analyst buy ratings, 15 neutral ratings and two sell ratings with a average target price of $18.30. The stock is trading at a P/E ratio of 6.24 and a forward P/E ratio of 8.46. The stock has a 3.97% dividend yield and the company has a book value of $1.91 per share. I have a neutral bias for the stock based on the mixed fundamental and technical picture.

3. Tilly's (TLYS) is a fast-growing destination specialty retailer of West Coast inspired apparel, footwear and accessories with an extensive assortment of the most relevant and sought-after brands rooted in action sports, music, art and fashion. Tilly's is headquartered in Southern California and, as of October 27, 2012, operated 161 stores and through its website.

(click to enlarge)

Insider buys

  • Seth Johnson purchased 5,000 shares on November 30 and currently holds 10,161 shares of the company. Seth Johnson has served on the company's board of directors and as Chairperson of Audit Committee since August 2011.
  • Douglas Collier purchased 2,000 shares on November 27 by the Collier Family Trust. The Collier Family Trust currently holds 7,161 shares of the company. Douglas Collier has served on the company's board of directors since September 2011.
  • William Langsdorf purchased 5,000 shares on November 27 and currently holds 5,000 shares of the company. Mr. Langsdorf has served as Senior Vice President and Chief Financial Officer since February 2007.
  • Bernard Zeichner purchased 5,000 shares on November 26-27 and currently holds 15,161 shares of the company. Bernard Zeichner has served on the board of directors since April 2011 and as Chairperson of Compensation Committee since August 2011.

Financials

The company reported the third-quarter financial results on November 20 with the following highlights:

Revenue $124.9 million
Net income $9.3 million
Cash $49.8 million

Outlook

Fourth quarter 2012 outlook:

  • Comparable store sales growth is assumed to be in the range of 1% to 3%
  • GAAP net income for the fourth quarter is expected to be in the range of $9.3 million to $10.3 million, or $0.33 to $0.36 per diluted share

Fiscal year 2012 outlook:

  • Comparable store sales growth in the range of 2.5% to 3.5%
  • GAAP net income for fiscal year 2012 is expected to be in the range of $0.90 to $0.93 per diluted share

Competition

Tilly's competitors include Pacific Sunwear of California (PSUN), Urban Outfitters (URBN) and Zumiez (ZUMZ). Here is a table comparing these companies.

Company TLYS PSUN URBN ZUMZ Industry
Market Cap: 366.22M 103.23M 5.50B 648.34M 909.44M
Employees: 1,000 2,700 6,970 1,350 4.95K
Qtrly Rev Growth (yoy): 0.16 -0.06 0.14 0.17 0.07
Revenue: 449.45M 846.73M 2.67B 628.85M 1.04B
Gross Margin: 0.32 0.42 0.42 0.36 0.44
EBITDA: 54.96M -1.15M 413.86M 85.70M 96.46M
Operating Margin: 0.09 -0.04 0.12 0.10 0.08
Net Income: 14.40M -62.72M 194.02M 38.02M N/A
EPS: 0.52 -1.04 1.34 1.21 0.48
P/E: 25.59 N/A 28.16 17.13 17.45
PEG (5 yr expected): 0.99 -0.60 1.37 0.73 1.16
P/S: 0.82 0.15 2.07 1.03 0.82

Tilly's is P/S ratio is inline with the industry average.

My analysis

The stock has a $11.5 price target from the Point and Figure chart. There have been four insider buy transactions and there have not been any insider sell transactions during the month of November. There are six analyst buy ratings, one neutral rating and 0 sell ratings with a average target price of $18.50. The stock is trading at a P/E ratio of 11.92 and a forward P/E ratio of 14.54. The company has a book value of $3.85 per share. The stock could be a good pick after the $11.5 price target is hit.

4. Quality (QLTY) operates the largest chemical bulk logistics network in North America through its wholly-owned subsidiary, Quality Carriers, and is the largest North American provider of intermodal tank container and depot services through its wholly-owned subsidiary, Boasso America Corporation. Quality also provides logistics and transportation services to the unconventional oil and gas industry including crude oil, proppant sand, fresh water, and production fluids, through its wholly-owned subsidiaries QC Energy Resources and QC Environmental Services. Quality's network of independent affiliates and independent owner-operators provides nationwide bulk transportation and related services.

(click to enlarge)

Insider buys

  • Thomas White purchased 20,000 shares on November 28 by Thomas M. White 2006 Trust. Thomas M. White 2006 Trust currently holds 137,868 shares of Quality. Thomas White has been a director of Quality since November 6, 2007.
  • Joseph Troy purchased 20,000 shares on November 26 by Joseph Troy Revocable Trust. Joseph Troy Revocable Trust currently holds 35,800 shares of Quality. Joseph Troy joined Quality in August 2010 as Executive Vice President and Chief Financial Officer.
  • Richard Marchese purchased 4,000 shares on November 26 and currently holds 55,702 shares of the company. Richard Marchese has been a director of Quality since January 2004.
  • Randall Strutz purchased 5,000 shares on November 23 and currently holds 23,697 shares of the company. Randall Strutz joined Quality in April of 2010 and serves as the Senior Vice President of Sales.
  • Alan Schumacher purchased 14,000 shares on November 23 and currently holds 65,702 shares of the company. Alan Schumacher has been a director of Quality since May 2004.

Financials

The company reported the third-quarter financial results on November 6 with the following highlights:

Revenue $222.1 million
Net income $8.9 million
Cash $2.9 million
Debt $393.7 million

Outlook

Gary Enzor, Chief Executive Officer, commented on November 6:

"Our third quarter proved to be a real challenge, with the highly unusual circumstance whereby all three of our segments reported lower than expected results. Based on what we see today, especially with the impact of Hurricane Sandy in the Northeast, our fourth quarter will be equally challenging. Despite these issues, we anticipate improved year-over-year performance in all of our segments in 2013. Given that we now have an excellent footprint in the energy space, our plans over the near-term are to optimize our existing and recently acquired operations, as well as generate free cash flow to reduce debt."

My analysis

The stock has met its bearish $7 price target from the Point and Figure chart. There have been five insider buy transactions and there have not been any insider sell transactions during the month of November. There are two analyst buy ratings, six neutral ratings and 0 sell ratings with a average target price of $9.50. The stock is trading at a P/E ratio of 3.64 and a forward P/E ratio of 7.12. The company has a book value of -$0.71 per share. I have a bullish bias for the stock based on the fundamental and technical picture.

5. AK Steel (AKS) produces flat-rolled carbon, stainless and electrical steels, primarily for automotive, infrastructure and manufacturing, construction and electrical power generation and distribution markets. The company employs about 6,200 men and women in Middletown, Mansfield, Coshocton and Zanesville, Ohio; Butler, Pennsylvania; Ashland, Kentucky; Rockport, Indiana; and its corporate headquarters in West Chester, Ohio.

AK Tube LLC, a wholly-owned subsidiary of AK Steel, employs about 300 men and women in plants in Walbridge, Ohio and Columbus, Indiana. AK Tube produces carbon and stainless electric resistance welded [ERW] tubular steel products for truck, automotive and other markets.

AK Coal Resources, Inc., another wholly-owned subsidiary of AK Steel, controls and is developing metallurgical coal reserves in Somerset County, Pennsylvania. AK Steel also owns 49.9% of Magnetation LLC, a joint venture headquartered in Grand Rapids, Minnesota, which produces iron ore concentrate from previously-mined ore reserves.

(click to enlarge)

Insider buys

  • Roger Newport purchased 5,000 shares on November 28 and currently holds 85,475 shares of the company. Roger Newport is Vice President, Finance and Chief Financial Officer of the company.
  • James Wainscott purchased 100,000 shares on November 27 and currently holds 663,985 shares of the company. James Wainscott is Chairman, President & CEO of the company.
  • David Horn purchased 10,000 shares on November 26 and currently holds 223,605 shares of the company. David Horn is Executive Vice President, General Counsel & Secretary.
  • Ralph Michael purchased 10,000 shares on November 26 and currently holds 49,428 shares of the company. Ralph Michael serves as a director of the company.
  • John Brinzo purchased 4,000 shares on November 23 and currently holds 38,790 shares of the company. John Brinzo serves as a director of the company.

Financials

The company reported the third-quarter financial results on October 23 with the following highlights:

Revenue $1.46 billion
Net loss $60.9 million
Cash $47.1 million
Debt $1.4 billion

The 2012 third quarter results include a non-cash income tax expense of $33.1 million, or $0.30 per diluted share, as a result of the change in a tax valuation allowance. The company reported a loss before income taxes of $28.7 million for the third quarter of 2012, compared to a loss before income taxes of $6.8 million for the third quarter of 2011.

Outlook

AK Steel said on November 13 that it expects shipments of approximately 1,375,000 to 1,400,000 tons in the fourth quarter of 2012 compared to shipments of 1,363,500 tons in the third quarter of 2012. The company said it expects that its average selling price for all products for the fourth quarter of 2012 will decline by approximately 5% from its average selling price of $1,073 per ton for the third quarter of 2012.

AK Steel expects to incur a net loss of between $0.67 and $0.72 per diluted share of common stock for the fourth quarter of 2012, which includes approximately $0.33 per share related to the non-cash income tax charge.

Competition

AK Steel's competitors include Nucor Corporation (NUE), Steel Dynamics (STLD) and United States Steel Corp. (X). Here is a table comparing these companies.

Company AKS NUE STLD X Industry
Market Cap: 443.63M 13.08B 2.83B 3.11B 1.28B
Employees: 6,600 20,800 6,530 43,000 2.06K
Qtrly Rev Growth (yoy): -0.08 -0.09 -0.17 -0.08 0.13
Revenue: 6.02B 19.81B 7.44B 19.66B 5.41B
Gross Margin: 0.06 0.08 0.09 0.08 0.16
EBITDA: 223.40M 1.67B 612.29M 916.00M 199.36M
Operating Margin: 0.00 0.05 0.05 0.01 0.05
Net Income: -986.90M 503.11M 133.18M -285.00M N/A
EPS: -8.97 1.58 0.60 -2.09 0.21
P/E: N/A 26.06 21.43 N/A 9.77
PEG (5 yr expected): -0.24 3.43 2.31 3.90 0.76
P/S: 0.08 0.66 0.38 0.16 0.34

AK Steel is trading below the industry average P/S ratio.

My analysis

The stock made a new 52 -week lows two weeks ago. There have been five insider buy transactions and there have not been any insider sell transactions during the month of November. There are four analyst buy ratings, 12 neutral ratings and three sell ratings with a average target price of $8.33. The stock is trading at a forward P/E ratio of 17.43 and the company has a book value of -$3.92 per share. I have a cautiously bullish bias for the stock based on the insider trading activity.

Source: 5 Stocks With Recent Intensive Insider Buying