5 Companies With Unusually Large CEO Purchases

Includes: BAM, CBB, CQB, MDRX, OPK
by: Kevin Quon

The chief executive officer is often considered the most important insider to follow as an investor. After all, the officer stands as the commander at the company's helm, making the necessary adjustments to safely navigate the enterprise away from risk and into profitable endeavors. As a result, he is believed to be the one most aware of the surrounding situation in regards to the company's future. Therefore, when a CEO buys his own company's stock, it can often be a strong symbolic action. After all, when insiders buy shares in seeking their own benefit, attentive investors can often prosper by keying in on the clue. By following those who are known to have a greater understanding of the company's opportunities, investors can stand to be more informed and enjoy the possible rewards of a more timely purchase.

For investors, changes to insider ownership can serve as important research clues when conducting due diligence. When insiders conduct open market purchases, this can often represent a voluntary form of commitment to the company stock that investors should note. Rarely do these purchases reflect alternative motives, which could be found in other sorts of purchases such as those related to expiring options or warrants. These open market purchases additionally abide by the thought that while there are many reasons for insiders to sell their shares, there are often very few reasons to buy shares apart from an expectation of future gains.

The following five companies reflect purchases made by CEOs of an atypically large amount. These were gathered over the last month ending April 8, 2013. However, remember that insider purchases represent just one part of the available information. Interested investors should continue to conduct their own due diligence prior to making any investment decisions. It is advisable to be familiar with the company's financials, chart performance, and recent press releases in order to more accurately assess the risks, benefits, and overall stability of the company at hand.

Company CEO Name Date Price Shares Value
Opko Health Inc. (NYSEMKT:OPK) Phillip Frost 04/04/13 $6.96 156,500 $1,089,197
Chiquita Brands Intl Inc. (NYSE:CQB) Edward Lonergan 03/15/13 $7.23 50,800 $367,284
Cincinnati Bell Inc (NYSE:CBB) Theodore Torbeck 03/15/13 $3.33 100,000 $332,700
Allscripts Healthcare Solutions, Inc (NASDAQ:MDRX) Paul Black 03/12/13 $12.69 23,625 $299,801
GrafTech International Ltd. (GTI) Craig Shular 03/15/13 $7.32 40,000 $292,800

Concerning the above list, the following are a few additional thoughts for investors to consider in regards to further conducting their due diligence on these companies:

  • Opko Health - It's important to realize that the Opko's CEO is pouring a significant amount of his large fortune into this company. He has been purchasing large amounts of shares almost on a daily basis. It remains interesting to note that CTO Jane Hsiao and Director Richard Lerner also made recent insider purchases into the company despite the rather large bump in share price thus far experienced over the last year. Having raised $175 million through a convertible notes offering, the company now remains well capitalized as it continues to develop its products now undergoing Phase III development, Replidea and Alpharen. The company is also well-funded as it begins to commercialize its 4KScore technology capable of effectively reducing unnecessary biopsies for prostate cancer.
  • Chiquita Brands - The last insider purchase for Chiquita Brands was made in December 2011 for a mere $35,860. Considering the large timeframe in between, this should add additional weight to the CEO's latest purchase. Chiquita Brands now trades below book value as it sports a price-to-book ratio of 0.94 and a rather low price-to-sales ratio of 0.11. The company is also expected to remain profitable as analysts predict earnings of 0.67 for 2013.
  • Cincinnati Bell - Cincinnati Bell's CEO was not alone when he purchased shares in mid-March. CFO Kurt Freyberger also purchased 15,000 shares at $3.33 for a combined value of $49,950. The company has fallen over 40% from its 52-week highs and may possibly be entering into oversold territory. Having had its earnings fall in recent years, Cincinnati Bell is expected to re-grow its earnings according to analysts. The company's trailing price-to-earnings ratio stands at 852.50 while its forward price-to-earnings ratio currently stands at 26.23.
  • Allscripts Healthcare Solutions - Four company directors also purchased shares totaling a value of $1,183,000. However, despite these purchases, two other company officers found here and here sold shares totaling $153,715 around the same time period. Nevertheless, Allscripts appears to be gaining ground. Despite the reported loss in 2012, analysts expect a return to profitability in 2013 with an earnings estimate of $0.70 giving a forward price-to-earnings ratio of 14.83.
  • GrafTech - Graphene, a product closely correlated to graphite, has been gaining significant interest in the investment community due to the new capabilities being discovered surrounding it. Despite the falling share price over the last year, GrafTech has continued to stay profitable and its upcoming earnings are expected to be increasing. With a long-term future gaining increasing interest, investors may soon find an opportunity at these levels for this company that specializes in graphite-based solutions. GrafTech currently trades below book value suggesting an undervalued share price. The company now supports a price-to-book ratio of 0.70 and a price-to-sales ratio of only 0.76. At the same time, analysts expect for the company's earnings to increase from $0.32 in 2013 to $0.56 in 2014 going forward.

Disclosure: I am long GTI, OPK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.