Insider buying is a very unique indicator of how a company is doing at a certain point in time and where the stock price may be heading. It is a strong vote of confidence and this is especially true when insiders, including major shareholders, invest large amounts of their own cash. The timing of these purchases to me is the most significant factor here and warrants analysis.
Here are some stocks with significant insider activity during last week:
Saga Communications Inc. (SGA) is a broadcasting company which owns and operates radio and television stations primarily in the eastern United States. On October 3 and 4, Towerview LLC picked up over 55,000 shares at an average price of $27.30. On top of that, Towerview has steadily added almost 20,000 more shares in September. Since then, the price has jumped to $29.00. P/E is 9.4, price/sales is 1.0, and price/book value is 1.4. SGA's free cash flow (FCF) per share is $5.48, which is the highest in the broadcasting industry. In the past 52 weeks, shares of Saga Communications have traded between a low of $19.50 and a high of $40.45. I think Saga may see a nice upward run in the coming months.
Nvidia Corp. (NVDA) is a provider of visual computing technologies. It operates in the sphere of graphics processing, professional solutions and consumer products. NVDA owns the famous GeForce chipset, which we see in many desktop and notebook personal computers. Nvidia is currently trading at $14.15, and has a 52-week range of $10.38 -$26.17. Nvidia's market capitalization is $8.39 billion, with a P/E ratio of 15.50. Compared to Qualcomm's (QCOM) P/E of 19.14 and Intel's (INTC) P/E of 10.21, NVDA's earnings seems to be within a reasonable range. However, it has a solid balance sheet and stable historic earnings.
On October 3, NVDA Director Seawell Brooke bought 100,000 shares at $11.91. It is very interesting that up until then in 2011, other insiders such as CFO Karen Burns, CEO Mr. Hsun and in 2010 Mr. Brooke himself, had only been selling their shares, and at much higher prices. The Oct. 3 purchase by the company director for almost $1.2 mill. signifies an inflection point for this stock. At $12/share this would be a strong buy for me.
American Railcar Industries Inc. (ARII) is a designer and manufacturer of hopper and tank railcars. It also repairs and refurbishes railcars, provides fleet management services and designs and manufactures certain railcar and industrial components.
Since August 2011, billionaire Carl Icahn, Director and major shareholder, has been steadily devouring ARII shares to the tune of over $4.5 million. The latest buy was on October 4 and included 17,900 shares at a price of $15.01. The market price has since gone up to $17.15 even though it dropped 3.4% last Friday. Icahn has now increased his stake to more than 55% of the company and there have been indications that the railcar industry is ripe for consolidation.
Overstock.com (OSTK) - the online retailer of discount and closeout merchandise, including bed-and-bath goods, home decor, kitchenware, furniture, watches and jewelry, apparel, electronics and computers, sporting goods, etc., has also seen its share of management support. Between August 1 and October 4, insider Francis Chou picked up 468,685 shares at prices between $8.95 and $12.72. Year-to-date insider trading activity has been predominantly buys.
Overstock.com closed at $9.38 on Friday, close to its 52-week low of $8.79. I think the growth potential for the company is limited, as I don't see how OSTK can compete against a giant like Amazon (AMZN) who is also everyone's favorite e-tailer.
VMware Inc. (VMW) operates in the sphere of information technology and provides virtualization solutions for cloud infrastructure, application and management.
George Soros is, and has been, a notable investor in VMware. On October 4, major shareholder EMC Corp. (EMC) invested over $19 million in purchasing 241,333 shares of VMW. This is in addition to the ten previous purchases by EMC since August totaling more than 650,000 shares.
VMW currently trades at $87.67, with a 52-week range of $71.04 - $111.43. The company has a P/E ratio of 42, below the average computer software & services industry P/E ratio of 63.7 and above the S&P 500 P/E ratio of 17.7. Even though this company has grown its earnings well in the past two years, I'm neutral on it since I prefer more integrated tech companies.