Insider buying can often be an indicator that a stock is undervalued or that there is an initiative going on in the company that may be a positive catalyst for the stock. While insiders fall victim to the same emotions and hopes that other investors do, purchases can also highlight things that previously may have been overlooked by investors. These lists should be used as a starting point for research.
Below are five stocks that have seen insider buying by their CEOs in the last week. I think the CEO and CFO are the best insiders to follow when looking at purchases. Directors often make annual purchases, or make purchases when they initially get on the board. They also are more removed from the day-to-day workings of the company and are less reliable because of that detachment.
CA Technologies (CA): CA technologies recently reported earnings causing the stock to sell off. The CEO, William McCracken, and a director made purchases in response to the share drop. McCracken plunked down $357,000 on January 27. Although the markets punished the stock after the January 25 earnings announcement, the company lifted guidance and McCracken described the quarter as a strong one.
Exar Corp (EXAR): CEO Pete Rodriguez purchased $63,000 worth of the company on January 28. His salary is $388,000 per year, so it is a significant investment for him. EXAR recently reported a wider than expected loss, and Rodriguez’s purchase was after that date. This appears to indicate that he believes in the long-term health of the company. Indeed, the stock has already fully recovered from the immediate drop after the poor report.
NL Industries (NL): Harold Simmons is the chairman and CEO of NL. The 79-year-old Simmons has been a regular buyer for at least the last two years. In that time period, the stock has shown strength since its 2009 lows. His current holdings are valued at more than $13 million. Most recently, he picked up another $46,000 worth on January 21. He’s been making purchases like this for the last six months, and had made very large purchases in July, preceding a big stock jump. While his current purchases are of a much lower dollar amount, I would recommend keeping an eye on him to see if he makes any larger purchases in the future. His timing seems to be impressive.
Sharps Compliance (SMED): Sharps is a medical waste disposal provider. CEO David Tusa made two recent purchases totaling $41,000. Notably, he owns about $264,000 of the stock and regularly gets options. In December 2009, Tusa and six directors sold shares at prices more than double what the stock is trading at today. Conversely, five of those directors and Tusa made purchases on the open market in the past week, after not making any sales since 2009, and after receiving options. These transactions are especially interesting and warrant a very close look at the company and its turnaround plans. I'm specifically putting Sharps on my list of stocks on which to conduct more research.
Shoretel (SHOR): Shoretel CEO Peter Blackmore purchased $100,000 worth of company stock on January 31. Like the situation where directors often buy stock when they get on the board, here Blackmore became CEO in December, and he seems to be buying shares because of that. This may be good timing. JP Morgan (JPM) just came out with a report and price target of $12. Shoretel is currently trading at $7.50
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.