One strategy that I like to follow when looking at smaller capped stocks is to keep an eye on company insiders, especially those whose investing history is almost perfect.
One such investor is Phillip Frost, M.D. of South Florida, whose hot hand has turned almost anything he touches into gold. Numerous financial articles have showcased his great investing prowess over the last couple of years. In fact, the Wall Street Journal Online named him as the insider with the second best returns for 2006, and Fortune magazine ranked him at #645 on the World's Richest People list.
He invested heavily in Ladenburg Thalmann Financial Services Inc (NYSEMKT:LTS) a couple of years ago. Shares of LTS have surged over that span, and yours truly followed along and bought stock of the company last fall at $1.09. Shares closed on Wednesday at $2.49!
The founder of Ivax Corporation (IVAX), which he later sold to Teva Pharmaceuticals (NYSE:TEVA), continues his great streak by investing in healthcare related companies.
One of Dr. Frost's more attractive investments is Continucare Corporation (NYSE:CNU). The company provides primary care physician services to patients, and practice management services to independent physicians. The company is based out of Miami, Dr. Frost's neighborhood.
While he has been an investor in Continucare for some time now, just last October he purchased another $100,000 worth of company stock at a price range of $2.34-$2.45.
While it is advantageous to follow company insiders' moves, it is also imperative to practice due diligence when considering an investment into smaller capped stocks. Insiders buy and sell stocks for a variety of reasons some of which might not be correlated with expected future returns.
Looking at Continucare's financials, one could see a pretty picture indeed. Low debt and high cash levels overshadow the tiny market cap of $200 million. The company has had a rising trend in both revenues and profits over the last 3 years.
Shares of Continucare closed trading on Wednesday at $2.97, which is about 20% more than the highest price paid for by Dr. Frost. Looking at his investment track record, that premium might be considered a bargain.
Disclosure: Author has no position in Continucare.