Almost every investor should have some exposure to the tech sector. Technology continues to play an increasingly large role for many consumers and businesses. While the markets have been rising, there are still a number of tech stocks that offer value, and some stocks are even seeing insider buying.
Many top corporate insiders receive stock awards and stock options as part of their compensation package. However, technology companies are known for offering even higher than average stock and option awards to company executives. Top executives and directors usually already have significant equity and option exposure through these compensation packages, so when you see insiders make additional purchases of stock using their own money, it can be a bullish sign. Sometimes, insider buys are just for a few thousand dollars, but all of these transactions are for significantly more, ranging from about $34,000 to over $350,000. Insider buying is widely followed by many investors because company executives and directors often have more insight than anyone else, into their own companies.
I have provided links for the insider transactions below, as well as recent updates for each company mentioned. Here are four tech stocks with notable insider buying so far in 2012:
Meru Networks, Inc. (MERU) provides wireless LAN solutions which are designed to optimize enterprise networks. This stock has been crushed in the past year and now trades at about $3.90, well below the 52 week high of $27.33. The stock was clearly overvalued at that level and investor expectations for growth were also too high in the past. However, the company is expected to grow in 2012, and it has the resources to do so. Meru has a strong balance sheet with no long term debt and about $40 million in cash. The company recently reported that revenues for the fourth quarter of 2011 were $23.3 million, up 13% from the $20.5 million reported in the fourth quarter of 2010. Revenues for all of 2011 increased by about 18%. While Meru did not report profits in recent quarters, it might be able to achieve profits in the next couple of quarters, if sales continue to grow at the current pace. A profitable quarter would be a very positive catalyst for the depressed share value. With the stock trading near the 52 week lows, and insiders making substantial buys, this could be a classic "buy low" opportunity. On February 7-10, 2012, Barry Newman, (a director) reported buying 100,000 shares in a transaction valued at over $350,000. This insider buy stands out due to the transaction value and because the stock is being bought near the 52 week low.
Texas Instruments, Inc. (TXN) is poised to benefit from improving margins for semiconductors in the short-term, as well as long-term growth for electronic devices. This company has a strong balance sheet and it offers investors a low-risk way to play the tech sector. This stock pays a dividend of 68 cents per share, which yields 2%. Earnings estimates are expected to rise from about $1.86 per share for 2012, to around $2.47 for 2013. This company has seen pressure on profit margins due to excess inventories, but the CEO recently stated that chip demand would see a "sharp snap-back" probably sometime in the next couple of quarters. This stock has been in an uptrend for the past few weeks, so I would buy on dips. However it remains undervalued for longer-term investors and insiders are buying at current levels. On February 7, 2012, Christine Whitman (a director) reported buying 1,000 shares in a transaction valued at about $34,000. This transaction is notable because directors typically receive equity and options for their service. Directors usually receive minimal cash compensation, so when a director spends their own money to buy shares, it can be a sign that the stock is undervalued.
Broadcom Corporation (BRCM) could be a growth stock for many years to come thanks to growing demand for smart phone chips. It makes chips for customers like Cisco Systems (CSCO), Dell Computer (DELL), Apple (AAPL) and many others. Broadcom has a broad portfolio of intellectual property, including more than 6,000 patents. Broadcom is also expected to benefit from the increased popularity of "ultra books" which are very lightweight laptops. This stock is undervalued based on growth prospects, plus it offers a dividend of 40 cents per share, which yields 1.1%. Analysts expect earnings to grow from about $2.77 per share in 2012 to around $3.07 per share in 2013. On February 7, 2012, Robert Finocchio, (a director) reported buying 5,000 shares in a transaction valued at about $189,000. This transaction is notable due to the transaction value and because it was made by a director, who usually receive far less cash compensation than what executives receive.
Power-One, Inc. (PWER) is frequently thought of as a "clean tech" company as it provides power conversion products for the renewable energy and other industries. This stock looks undervalued and currently trades for about $5 per share which is considerably below the 52 week high of $9.30. Power-One has a strong balance sheet with about $200 million in cash and it recently reported strong quarterly results in spite of a weak global economy. Revenues for the fourth quarter came in at $267 million, which resulted in profits of about $32 million, or 21 cents per share. A number of "clean tech" companies have been reporting losses and others have even filed for bankruptcy. By contrast, the strong results reported by Power-One in a weak economy validates the business model and management team at this company. Power-One is expected to see some continued weakness in Europe. However, strength is expected in solar applications from countries like India and the U.S. If European demand eventually rebounds, this company could see much stronger results. The stock looks cheap now and insiders have been taking advantage of the currently low price. On February 8, 2012, Christopher Mark Smith, (a director) reported buying 20,000 shares in a transaction valued at about $161,400. This insider buy is notable due to the transaction size and also because it was made by a director, while the stock is close to a 52 week low. This could be another sign that these shares are significantly undervalued.
The data is sourced from Yahoo Finance and Insidercow.com. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The data contained herein is for informational purposes only.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.