As I discussed recently, there are many factors I screen for prior to making a stock purchase. One is abnormal options activity. Another strong factor I look for is a large purchase by majority shareholders, as those are not only the people with the best view of the company's upcoming business prospects, but it's also nice when they have their financial interests aligned with us investors. Here are some stocks with those attributes:
Private equity firm Crestview Radio Investors has been acquiring more of Cumulus Radio (NASDAQ:CMLS) stock, bringing its total to over 56M shares. Crestview has approximately $4B under management, targeting equity investments in the $100-$250M range and enterprise values up to $3B. CMLS is in its sweet spot, and the firm has been buying feverishly on the open market, buying 976,607 shares on Sept. 30, 437,968 on Sept. 26, 3,425,770 on Sept. 22, and 406,890 on Sept. 19. I wrote recently about my thoughts on CMLS and the compelling value it's showing here at these levels.
CC Media Holdings is the parent company of Clear Channel Communications and Clear Channel Outdoor Holdings (NYSE:CCO), and the company has been buying stock in CCO recently. On September 27, the company bought 123,313 shares after buying over 370,000 shares collectively in the month of September. I don't quite see value in the stock, as it has a massive debt load of approximately $2.5B against roughly $600M in cash, almost 7.5x EV/EBITDA, no dividend, and is trading at 16x EV/FCF. This stock is one I'd stay away from for now, despite this very bullish buying activity.
Baker Brothers Life Sciences has been buying heavily into Viroparma (VPHM) recently. This firm, focused on publicly traded life sciences, was co-founded by brothers Dr. Felix Baker and Julian Baker. It bought 447,561 shares on Sept. 26, after buying 129,187 shares on Sept. 6. The stock looks compelling trading at 11x P/E, with almost $370M in net cash (translating to over 25% of its market capitalization), and just over 5x EV/FCF. I think this biotechnology firm has good value here at $17.50.
Private equity firm Harbinger Capital made a recent large purchase into Crosstex Energy (XTXI). This distressed and value oriented firm run by Philip Falcone since its founding in 2001 bought 1,770,035 shares on Sept. 16 after disclosing the day before ownership of over 5.2M shares. The company trades at .3x P/S, and .75x EV/S and a 3.2% dividend yield showing some value. However, the company has a massive debt load of almost $800M against very little cash, trades at over 35x P/FCF, and negative return on equity. I'd stay away from this energy-related stock, when I see that Linn Energy (NASDAQ:LINE), Enerplus Corporation (NYSE:ERF), Martin Midstream Partners (NASDAQ:MMLP), Exxon Mobil (NYSE:XOM), and Chevron (NYSE:CVX), and others show a more consistent dividend history and/or returns on equity.
Sources: Yahoo, Guru Focus, and SEC filings.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CMLS, ERF, or MMLP over the next 72 hours.