By Guan Wang
Insider transactions are a good way to get an idea what is really going on with a company. Corporate insiders are much more experienced than ordinary investors in their respective industries and certainly know more about their own companies. Plus, their income is highly correlated with their companies' performance, so they are only going to purchase their companies' stocks when they believe such a purchase will be profitable. The more they purchase, the greater the likelihood that the stock will outperform the market in the future. In this article, we are going to take a closer look at a few large-cap stocks that have experienced large insider purchases recently.
Sprint Nextel Corp (S): Director Daniel Hesse purchased 50,000 shares of Sprint at $2.38 per share last week. The transaction was reported to SEC on April 27. Sprint closed at $2.48 per share on April 30, netting Hesse a tidy profit over just three days. Sprint is also quite popular amongst the hedge funds we track. At the end of 2011, there were 35 hedge funds with Sprint in their 13F portfolios. David Einhorn is the most bullish of these about Sprint. His Greenlight Capital had $173 million invested in this position at the end of last year (check out David Einhorn's top picks). Rob Citrone, Larry Robbins, and Jim Simons are also in favor of Sprint.
We are favorable about the recent addition of iPhone to Sprint's line-up, which is sure to help increase the company's postpaid subscriber base. Sprint has also been improving its network quality. The company announced a multibillion-dollar Network Vision project in December 2010, and over the past year, the company has been executing project initiatives and clearing hurdles for a rollout in 2012.
In 2011, Sprint's revenue grew by 3.4% to $33.7 billion, yet the company still suffered a net loss of $2.89 billion. The costs of Network Vision are expected to decrease the margins in 2012. However, Network Vision is also expected to lower the company's operating expenses and create other benefits in the long term. As a result, margins in 2013 and 2014 are expected to be improved at an accelerated pace. Sprint's operating loss per share is expected to be $1.44, $0.85, and $0.25 respectively in 2012, 2013 and 2014, versus $0.91 per share in 2011.
Huntington Bancshares Inc (HBAN): On April 23, Director Stephen Steinour bought 5000 shares of Huntington at $6.4194 per share and another 3150 shares at $6.413 per share. Steinour also bought 10,000 shares of the stock at about $6.54 per share on April 20. EVP Daniel Benhase bought in as well, purchasing 5000 shares at $6.51 per share on April 20, while James Dunlap bought 3000 shares at $6.44 per share on April 23. Huntington closed at $6.69 per share on April 30. The stock is also quite popular among hedge funds. As of December 31, 2011, there were 22 hedge funds with Huntington positions, including Cliff Asness' AQR Capital Management, which had about $20 million invested in this stock at the end of last year. Ric Dillon, Ken Griffin, and Israel Englander are also bullish about this stock.
Huntington is believed to be well-positioned to grow its lending portfolio in the year ahead. Only a very small part of its loans are on a run-off mode, while a certain number of Huntington's peer companies are still decreasing lending. Huntington's commercial construction loans are on a run-off mode, but they only account for 1.5% of the company's total loans. Moreover, Huntington's Commercial and Industrial lending was up 12.5% over the past year and we expect such strong growth to continue in the future. Analysts expect the company to make $0.64 per share this year and $0.66 per share next year, making its forward P/E ratio around 10.5, on par with 9.6 for rival Fifth Third Bancorp (FITB) and 10.4 for competitor Keycorp (KEY).
Other Companies: Over the past week, insiders also reported buying about 6000 shares of Valhi Inc (VHI), 5000 shares of Southwest Airlines Co (LUV), 1500 shares at Dover Corp (DOV), and 1000 shares of Philip Morris International Inc (PM). Harold Simmons has been continuously purchasing Valhi for more than one year now (we discussed his purchase in detail in a previous article). Southwest Airlines and Dover both have attractive valuation levels and decent growth prospects. Southwest Airlines' forward P/E ratio is about 12 and its earnings are expected to grow at 9% per year. Dover's forward P/E ratio is 12.7 and its earnings are estimated to grow at about 12.4% annually. We like Philip Morris as a dividend play. It has a decent dividend yield of 3.44% and a low payout ratio of 59%.
Disclosure: I am long PM.