During market downturns, we like to focus on companies with heavy insider buying. Doing so allows us to refresh our watch list of companies approaching inflection points. By tracking them closely over the next few quarters, our goal is to ferret out those companies poised to emerge as leaders in the next up-cycle.
Listed below are ten companies with recent insider purchases of $250,000 or more. We have chosen to focus on the heaviest insider purchases with the mindset that these offer investors a much greater chance of finding a winning stock than recent purchases done in small increments.
1. After purchasing $11,000,000 of Cathay General Bancorp’s (CATY) stock in early August at an average price of $10.89, Executive Vice President Anthony Tang accumulated another 402,330 shares at an average price of $12.72. This deserves attention. Incremental insider purchases completed at higher prices than those seen during an initial set of purchases often coincide with a company experiencing improving fundamentals. After all, why would an insider buy a $5,000,000 block of stock if business was about to turn down?
2. To say that Cumulus Media’s (CMLS) stock is being accumulated by Crescent Partners would be an understatement. Already a 44% majority owner in Cumulus Media, Crescent added another $4,000,000 of CMLS stock over the past ten days. Shorts have also begun to cover, with short interest decreasing from 9.15M shares short to 7.90M shares short. One final note: while the market has imploded over the past seven sessions, CMLS has held like a rock. Is this a long-term bottom being forged?
3. We are always interested in companies where noted bio-tech investors, the Baker Brothers, are already significant investors. We become even more interested when we see them adding to considerable stakes in stocks trading not that far off of their recent highs. Genomic Health (GHDX) is one such company. While company insiders have been sellers of the stock during the past few months, the Baker Brothers bought $20 Million of stock during November. Already the biggest shareholders in the company, it is interesting to see them adding to their position ahead of important data due in the coming months. Watch for a breakout above $28.78, as such a move would propel the stock to all-time highs and possibly presage an ultimate move into the mid-to-high $30s.
4. The recent 33% rise in Halozyme Therapeutics’s stock (HALO) did not deter company director, Randall Kirk, from doubling his stake in the company. After spending nearly $6 million on his first set of purchases in early August, Kirk recently bought over $7 million worth of stock above $8. These insider purchases bear watching, especially when one considers the remarkable strength in HALO during the recent market downswing.
5. Is a long-term bottom being formed in Morgans Hotel Group (MHGC)? Noted investor, Ron Burkle, bought over $8 million in Morgans Hotel stock in late August at a price of $6.13. Now another insider, 10% holder David Hamamoto, has begun to accelerate purchases. Early last week, Hamamoto bought over $750,000 of MHGC, his second significant purchase in recent months. Morgans Hotel intrigues us, particularly if we see either of these insiders, or any new insiders, continue buying more stock in the coming months near current prices.
6. Francis Chou, a 10% holder in Overstock (OSTK), recently averaged down into his position in the company with $1.4 million in purchases during November. While definitely a positive, he is the only insider buying. If business were actually turning for the better, how come others in upper management have not stepped up to the plate just yet? Based on the lack of insider activity, we think the odds are high that OSTK heads lower before embarking on a sustainable up-trend.
7. Considering that OfficeMax’s (OMX) stock has dropped nearly 80% in 2011, one has to question why insiders have not begun to buy in earnest. CEO, Saligram Ravichandra Krishnamurty, recently bought $245,000 of stock at $4.42. While a positive sign, until we see additional insider buys in the near future, we advise investors to steer clear of OfficeMax.
8. Notwithstanding the horrible near-term action in its stock, Overseas Shipholding Group (OSG) has begun to see accelerated purchases by one large shareholder. Already a 10% holder, Charles Fribourg bought close to 200,000 shares in OSG during the past two weeks. We are patiently waiting to see if other insiders join him and if he continues to “back up the truck” in the coming months.
9. We always like to see multiple insiders buying at the same time. In the case of Sharps Compliance (SMED), a small medical waste company, it will be interesting to see if the four insiders who recently bought almost $250,000 of stock continue adding to their positions over the next quarter.
10. Some interesting insider activity recently took place at Vector Group (VGR). While one has to question why Carl Icahn is a seller, one also has to wonder what noted healthcare investor, Phillip Frost, sees in cigarette maker, Vector Group. Both parties recently crossed over 5 million shares at $17.70. Of note, VGR’s CEO was also a buyer of some of Icahn’s stock, purchasing 500,000 shares at the same price.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.