2 Cheap Stocks With Recent Insider Buying

 |  Includes: AIG, OFIX
by: Bret Jensen

Hope everyone in the SA community had a relaxing Memorial Day weekend. Holiday in south Florida was mixed. The rain down here in Miami (I have never figured out why Florida is called the "Sunshine State") canceled two golf outings but also allowed me to get through my weekend investment reading early. As regular readers of my columns know by now, this includes looking at the top 20 insider buys column in Barron's. Two cheap stocks with recent insider activity caught my eye in this week's magazine.

American International Group, Inc. (NYSE:AIG) had an insider buy more than $450K worth of new shares last week. The insurance company has done a marvelous job in shedding businesses and turning around the remaining pieces of their insurance franchise. In the process, the company has repaid the taxpayers for their largesse & bailout in the midst of the financial crisis; an outcome that seem far-fetched back in 2009. Despite the stock's recent run up, AIG still sells for two thirds of book value. Consensus earnings estimates for both FY2013 & FY2014 have also moved up significantly over the past two months. Analysts have consistently underestimated AIG's earnings power. The company has easily beat earnings estimates for six straight quarters. The average beat over consensus has been north of 40% over the last year and a half. The stock has a five year projected PEG of under 1 (.95) and some fund managers believe AIG could reduce its share count by ~30% by 2015 via stock repurchases.

Orthofix International (NASDAQ:OFIX) is a small medical device company that designs & manufactures medical equipment used principally by musculoskeletal medical specialists for spine and orthopedic applications. The stock slid 15% recently on the back of a dismal earnings report. The company missed on top & bottom lines and deliver tepid forward quarterly guidance as well. Management stated sales/earnings were impacted by negative currency translations and two less selling days in the quarter.

Several insiders took the decline as an opportunity to add over 25,000 shares to their holdings. The company has net cash on its balance sheet and sells at just ~28% above book value. The stock sells near the bottom of its five year valuation range based on P/CF, P/B and P/E. The shares might be worth considering for patient investors as the stock would gain ~75% if it just got back to its recent highs a few months ago.

Disclosure: I am long AIG. 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.