By Kramer Winingham
Insider buying often gives us clues about a good buying opportunity. We’ll evaluate five companies that have insiders buying and see if we should be investing too.
Air Transport Services Group, Inc. (ATSG)
Air Transports Services Group leases aircraft and provides airline operations through numerous subsidiaries. The company generates revenue through three main customers with whom the company has long-term contracts: DHL Worldwide Express (DPSGY.PK), BAX Global and the U.S. Military. These three customers make up 78% of the company’s revenue. Air Transport Services was badly hit during the recession. A weak 2008 caused share prices to trade as low as $0.15 a share.
However, earnings rebounded and propelled shares as high as $8.65. Now trading in the $4.40 range, share prices are only 6.5 times forward earnings. This is significantly cheaper than competitors C.H. Robinson Worldwide (CHRW) at 24.7 times forward earnings, Expeditors International of Washington (EXPD) at 22.0 times forward earnings, and Hub Group Inc. (HUBG) at 16.7 times forward earnings.
Air Transport Services does not offer a dividend but this low valuation should make it attractive to value investors. With insiders buying, this could foretell a strong future outlook. Investors should be wary, however, as FedEx (FDX) recently announced a gloomy outlook for the parcel industry.
Ligand Pharmaceuticals Inc. (LGND)
Ligand Pharmaceuticals is a biotechnology company focused mainly on research and development. The company has experienced volatile earnings over the last few years and most likely will continue to do so as that is the nature of biotechnology firms. This volatility is the trouble with investing in pharmaceutical research firms. However, most are not as volatile as Ligand. Competitors Amgen (AMGN), Celgene (CELG), Biogen Idec (BIIB), and Illumina Inc. (ILMN) all managed positive annual growth over the last five years. Ligand on the other hand has averaged a 25.5% decline in sales over the last five years. While the fact insiders are buying this company is a good sign, Ligand is not the type of company value investors should be putting their money in.
National Penn Bancshares Inc. (NPBC)
National Penn Bancshares is the holding company for National Penn Bank, a small bank chain in Pennsylvania. As most regional banks were, National Penn was punished thoroughly through the Great Recession. Despite the decline in share price the company still trades at 13.1 times forward earnings, which is a little high for a regional bank. Comparable banks like M&T Bank Corp. (MTB), State Street Corp. (STT) and Webster Financial Corp. (WBS) trade at 9.7, 8.4 and 10.2 times forward earnings respectively.
However, National Penn is cheaper than Susquehanna Bancshares Inc. (SUSQ) and Signature Bank (SBNY) trading for 13.9 and 14.3 times forward earnings. In terms of risk each bank would need to be investigated to tell the risk levels of each. National Penn, however, is extremely well capitalized with Tier 1 and Tier 2 Capital Adequacy ratios of 16.1% and 17.4% at the beginning of the year. The company’s dividend yield is only 1.8%, however for the long-run this bank will most likely provide a good return based on its capitalization and the eventual strengthening of the economy and financial sector.
Jamba, Inc. (JMBA)
Jamba owns and franchises Jamba Juice stores that offer smoothies and healthy foods. The company also is looking to expand the licensing of its drink products. The company has struggled to become profitable since its inception. The company’s multi-year strategy is to move away from company-owned stores to franchising and product licensing. Management has identified franchising and licensing as more profitable opportunities. Analysts are not optimistic, forecasting the company will continue to lose money through this year. Should the strategy succeed, Jamba could become an attractive growth investment, however this is not an investment for value investors. Insider buying is obviously attractive, as well as the company’s lack of debt, however the weak outlook for earnings doesn’t bode well for a margin of safety.
BB&T Corporation (BBT)
BB&T Corporation is the holding company for Branch Banking & Trust (BB&T) Company, which is a southeastern regional bank chain. BB&T has done a great job throughout the Great Recession to remain profitable, something competitors like Bank of America (BAC), Seacoast Banking Corp. (SBCF), and Synovus Financial Corp. (SNV) have not be able to do. BB&T is extremely well capitalized as the company’s Tier 1 Common Ratio stood at 9.1% and Total risk-based capital at 16.0% at end of 2011’s second quarter. Shares are trading for 11.9 times forward earnings and yielding 3.1%. This company is well positioned for an economic rebound while at the same time is cushioned in case there is slow growth. It makes sense why insiders are buying. This is a company value investors should be considering.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.