The current volatility in the market has left many promising stocks trading near their lows. We mined through the over 6,000 insider transactions filed on SEC Forms 3, 4, and 5 by insiders in the month of December, and crossed them with stocks currently trading at their lows, many at valuations much cheaper than their peers, to identify the following candidates. These are stocks that while trading at their lows and down strongly in the past year, nevertheless, are seeing unusual insider buying by multiple insiders signaling perhaps that a bottom may be near (for more info on how to interpret insider trades, please refer to the end of this article):
Chimera Investment Corp. (CIM): CIM is a REIT investing in residential mortgage-backed securities (RMBS), residential mortgage loans, and real-estate related securities. It is externally managed by Fixed Income Discount Advisory Company (FIDAC), a wholly owned-subsidiary of leading mortgage REIT (mREIT) Annaly Capital Management Inc. (NLY). Insiders currently hold 2.0 million or 0.2% of outstanding shares.
CIM is down 38% in the past year, and currently trades near its all-time lows, with the most recent fall after the company announced on November 10th that it would delay the filing of its Q3 report as it has not completed an analysis of the treatment under GAAP of other-than-temporary impairments (OTTI) related to the company's investments in securities rated less than AA, non-rated non-Agency securities and other subordinate securities. However, subsequent to that, on November 14th, the company updated the status of its 10-Q filing, noting no material changes to historical financial statements and perhaps more notably a GAAP book value of $3.27, more than 25% higher than yesterday's closing price in the $2.50s.
Analysts seem to be divided on their verdict on CIM, as of the eleven analysts covering the stock, six rate it at hold, three at buy and two at underperform/sell. Also, its shares trade at 5-6 forward P/E and 0.8 P/B compared to averages of 8.4 and 0.8 for its peers in the mREIT group. Furthermore, its peer and industry leader NLY is trading at much higher 7 forward P/E and 1.0 P/B, and given that CIM besides being a peer is also run by a wholly owned subsidiary of NLY, one can argue that they should trade at comparable P/E and P/B, that would value CIM at 20%-25% above current prices.
However, while the turmoil continues, insiders have been confidently buying stock, with three insiders (all Directors) purchasing a total of 157,848 shares in December for $0.6 million, at a higher rate than usual given that insiders purchased only an additional 20,000 shares in the past three months, and they purchased a total of 0.66 million shares in the past year. Also, perhaps even more notably, the last time insiders sold CIM shares was in November of 2008.
First Niagara Financial Group (FNFG): FNFG is a holding company for first Niagara Bank that provides retail and commercial banking, and other financial services to individual, families and businesses via over 250 offices across upstate NY and PA. Insiders currently hold 3.7 million or 1.3% of outstanding shares. The stock is down 36% in the past year, and trades near almost ten-year lows. About half of the fall has been precipitated after the company's announcement on August 1st of a definitive agreement to acquire 195 Upstate New York and Connecticut branches and $15.0 billion of deposits from HSBC Bank USA, a subsidiary of U.K. based global provider of commercial and investment banking services HSBC Holdings Plc (HBC). The decline has been precipitated based on investor concerns that the transactions would not be immediately accretive, and also to account for the recent $450 million offering of its common stock that added 17% to its outstanding shares.
FNFG trades at a discount 8-9 current P/E on a TTM basis, and at 0.6 P/B, compared to averages of 13.7 and 0.7 respectively for its peers in the savings & loan group. Insiders have been quietly accumulating shares in the company, as eight insiders purchased a total of 21,000 shares for $0.5 million in December, a strong pickup in buying given that insiders bought only a total of 64,300 shares (selling 17,000 shares) in the past year. The buyers included CFO Gregory Norwood, EVP Oliver Sommer, SVP John Mineo and five other directors.
Triquint Semiconductor (TQNT): TQNT manufactures a broad range of high-performance RF, analog and mixed-signal ICs that are incorporated into a variety of communications products, including cellular phones and pagers, fiber optic telecommunications equipment, satellite communications systems, high performance data networking products and aerospace applications. Insiders currently hold 1.2 million shares or 0.8% of outstanding shares. Insiders hold 1.4 million or 0.8% of outstanding shares.
The stock is down over 60% in the past year, and trades near its lows of the year, and at 14-15 forward P/E and 0.9 P/B, while earnings are projected to collapse from 83c in 2010 to 50c in 2011 to 35c in 2012. During the month of December, two insiders (both Directors) reported that they bought a total of 116,833 shares for $0.5 million (including shares bought during the last two trading days in November), a pickup given that insiders reported buying only an additional 35,500 shares during the remaining eleven months of the year. The pickup in insider buying as the stock forms what appears to be a technical bottom in the $4 to $5 range may be a sign of confidence in the outlook for the company.
Novavax Inc. (NVAX): NVAX is a development stage biotech company focused on the development of recombinant vaccines using its virus-like particle (VLP) platform technology, targeting pandemic and seasonal influenza, and other infectious diseases. Insiders currently hold 11.1 million or 10.0% of outstanding shares. The stock is down 45% in the past year, and it trades within striking distance of its lows for the year. While the stocks grinds to its lows, insiders bolstered their confidence in the company, as in the month of December, Chief Science Officer Gregory Glenn and Director James Young bought a total of 204,000 shares for $0.3 million. This is significant and a sign of confidence in the outlook for the company, especially given that insider buying is relatively uncommon at NVAX, where in the past three plus years insiders bought only an additional 205,000 shares.
Credit: Fundamental data in this article were based on SEC filings, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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