If a company’s future looks better than investors are expecting, insiders should be the first to know. We’ll look at five companies with heavy insider buying and see if value investors should start buying as well. While insiders sell for a variety of reasons, insiders typically buy because they think the stock price does not represent current value. These insiders already have significant stakes in their company because their pay and career are tied to it. Stock purchases beyond mandatory contract requirements are often dispositive of their belief in the company. Here is what I found:
Amphenol Corp. (NYSE:APH)
Amphenol Corp is a designer and manufacturer of connectors and interconnect systems for electronic applications. The company is trading for 13.2 times forward earnings, which is more expensive than competitors Molex Inc. (NASDAQ:MOLX), Power-One Inc (NASDAQ:PWER), and Dolby Laboratories, which are trading for 11.3, 5.0, and 10.3 times forward earnings, respectively. However Amphenol does have a stronger net profit margin than American Semiconductor (NASDAQ:AMSC) and Tyco Electronics (NYSE:TEL). Earnings have been growing strong at 19.8% annually over the last five years. The company offers a minuscule dividend; however, considering the growth potential, Amphenol might be attractive to value investors. Director Martin Loeffler believes it’s a good buy, as he purchased 115,300 shares in August.
Philip Morris International, Inc. (NYSE:PM)
Philip Morris is the holding company for numerous cigarette and tobacco brands. The company is right in line with competitors Altria Group (NYSE:MO), British American Tobacco (NYSEMKT:BTI), Reynolds American Inc. (NYSE:RAI) and Lorillard (NYSE:LO) in terms of forward earnings multiples and dividend yields. What separates Philip Morris from the pack is the net profit margin, which is 11.4% against a 2.1% industry average. Yielding 4.8% and trading for 13.4 times forward earnings, Philip Morris looks like a promising investment. However, cigarette manufacturers are always subject to tax increases and lawsuits that could hurt their business. That said, cigarette manufacturers are not going away. Director Sergio Marchionne bought 1,100 more shares at the end of August, showing he’s not worried. For the value investor not offended by cigarettes, Philip Morris is a strong investment with a great dividend.
Whirlpool Corp (NYSE:WHR)
Whirlpool Corp is the world’s leading manufacturing of major home appliances. Currently trading at an unbelievably cheap 4.5 times forward earnings, it makes sense why the company’s executive vice presidents of Europe and Latin America are both buying. This is a cheaper valuation than other appliance makers, Helen of Troy Ltd. (NASDAQ:HELE), Lennox International (NYSE:LII), and Spectrum Brands Holdings Inc (NYSE:SPB). Direct competitors in the major home appliance industry are difficult to find, because LG Electronics Inc, Bosch and Siemens, and GE Appliances & Lighting are all privately held. The best comparison is the struggling Electrolux (OTCPK:ELUXY). Electrolux’s struggles may indicate how tough the market is for major home appliances.
The second quarter of 2011 wasn’t pretty for Whirlpool, as the company lost $2.09 per share. This loss was due to legal problems, increasing material costs and weak demand. None of this is good. The good news is gross margin remained in line with previous quarters, indicating cost of goods sold didn’t change too much. Also the company reaffirmed guidance for 2011 earnings per share to be in the $12-$13 range. Fears about Whirlpool’s future are most likely overblown. Unless management is completely off with its guidance, the company’s stock is extremely undervalued. The company’s 4.0% dividend has held firm throughout the last five years. The stock has all the right makings for a great value play. For a value investor looking to go against the tide, this company is definitely worth a closer look.
Baldwin Technology Co (NYSEMKT:BLD)
The last year has not been pretty for printing press manufacturer Baldwin Technology. Since firing CEO and President Karl Puehringer last October, the company has struggled to turn a profit. Despite modest estimates by analysts, Baldwin Technology has underperformed. Still, Director Claes Warnander is buying. Insider buying is generally a good sign; however betting on a turnaround like this is not something value investors should be into. The company’s interest coverage in -0.7, definitely not a good sign. Investors would be better served to look at other companies in the diversified machinery industry that trade for reasonable multiples and have been able to turn a profit, like Actuant Corp (NYSE:ATU), Illinois Tool Works (NYSE:ITW), Ingersoll-Rand Co (NYSE:IR), or ITT Corp. (NYSE:ITT).
Juniper Networks, Inc. (NYSE:JNPR)
A recent earnings miss from the network equipment maker Juniper Networks really did a number on the company’s share price. Despite this decline and a string of insider selling, Director David Schlotterbeck recently purchased 7,100 shares. That doesn’t mean it was a good idea. The stock chart for industry leader Cisco Systems (NASDAQ:CSCO) looks like a declining staircase. Currently trading at 10.3 times forward earnings, it's unclear how much further Cisco can fall. Juniper Networks, on the other hand, still trades for 17.3 times forward earnings and looks to have further to fall.
The problem is not the company; it’s the industry. Further innovation in the networking equipment industry will likely only be in the form of cheaper equipment. This means margins will only continue to be squeezed. In an industry with weak growth prospects, the last place you would want to be is in the number two spot. Cisco is nearly ten times as large and has a better net profit margin. Juniper Networks is not a good pick for value investors, as the valuation still has room to unwind, and it will, as investors start to lower their growth expectations for the industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.