Analyzing 6 Stocks With Recent Insider Buying

by: Brian Gorban

As I discussed in my recent article here, there are many factors I screen for prior to making a stock purchase. One strong factor I look for is insider purchases as those are not only the people with the best view of the company's upcoming business prospects, but also nice when they have their financial interests aligned with us investors. Let's analyze these stocks:

1) Cumulus Media Inc. (NASDAQ:CMLS), a radio broadcasting company, engages in the acquisition, operation, and development of commercial radio stations in the United States. On Sept. 19, Chairman, CEO, and President Lewis Dickey purchased 73,930 shares at $2.37 and followed that up the next day with another 49,320 share purchase at $2.98. The valuation looks compelling with the stock trading under 3x price/earnings and .5x price/sales.

The company does have its share of risks though as a large portion of its assets are in goodwill and intangible assets and terrestrial radio continues to have negative revenue growth. However, with this rather sizable insider buy and over 30% of the shares outstanding owned by insiders, I think this is a good speculative buy here at $2.75.

2) American Eagle Outfitters (NYSE:AEO) operates as an apparel and accessories retailer in the United States and Canada. The chairman of the board, Jay Schottenstein, recently made a very large 565,200 share purchase at $11.28 on Sept. 21 and followed that up the next day with a 434,800 purchase on Sept. 22. The stock looks reasonably cheap trading at just over 14x price/earnings, .8x price/sales, and very nice 3.7% consistent dividend. This stock is a nice buy for the long-term dividend holder, along with stocks I recently mentioned here.

3) Equity One (NYSE:EQY) is a REIT that engages in the ownership, management, acquisition, renovation, and development of neighborhood and community shopping centers in the United States. Chairman of the board Chaim Katzman bought 231,400 shares at $15.86 on Sept. 22. The stock is a little rich on an earnings basis, trading just under 20x price/earnings, but trades just above 1.1x price/book while yielding almost 6%. I think this is a buy here at $15.50 with such strong insider buying and a favorable dividend, much like stocks I recently mentioned here.

4) Smithfield Foods (NYSE:SFD), together with its subsidiaries, engages in the production and marketing of fresh meat and packaged meat products in the United States and internationally. On Sept. 20, Chairman Joseph Luter bought 200,000 shares at $19.09. The stock looks attractive trading under 6x price/earnings, .25x price/sales, and .85x price/book. I think this is a buy here at $18.25.

5) Aruba Networks (NASDAQ:ARUN) provides distributed enterprise networks that securely connect local and remote users to corporate information technology resources worldwide. Board member and partner of Sequoia Capital, Douglas Leone, made a massive 351,931 purchase at $20.25 on September 21 followed by a 660,069 share purchase at $19.44 the next day. The stock looks pretty expensive though trading at 38x price/earnings, 6x price/sales, and almost 7x price/book.

The balance sheet looks clean though with the company having no debt, and over $2/share in net cash. However, with the stock so expensive, I have to stay away from this stock despite the strong insider purchases. Moreover, when Cisco Systems (NASDAQ:CSCO) for example, is trading at a much more reasonable 14x price/earnings, under 2x price/sales and price/book, 1.6% dividend yield, and almost $6/share in net cash, I'd rather own that competitor.

6) MSCI (NYSE:MSCI) provides investment decision support tools, including indices and portfolio risk and performance analytics for use by institutions in managing equity, fixed income, and multi-asset class portfolios. On Sept. 23, Chairman, CEO, and President Henry Fernandez bought 10,000 shares at $29.54, bringing his total ownership to well over 900,000 shares now.

The stock looks rich though, trading at 39x price/earnings, over 5x price/sales, and 3x price/book. Moreover, the stock has a heavy debt load which I'm not attracted to in this current volatile environment. I would prefer to look at buying some of the other stocks mentioned above.

Sources: Yahoo, Guru Focus, and SEC filings

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AEO, CMLS, CSCO over the next 72 hours.

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