Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

Wish you could get an inside peak at your favorite companies? One idea is to follow company insider stock buying trends.

With this idea in mind, we ran a screen. We first screened for stocks with the confidence of their company insiders, such as members of the board and upper management, with significant net insider purchases over the last six months representing at least 2% of share float.

Since most companies only have a handful of company insiders, net insider purchases representing 2% of share float is a big show of confidence in their employer's prospects.

We then screened for those that also appear undervalued relative to the Graham Number. The Graham Number is a measure of maximum fair value created by the "godfather of value investing" Benjamin Graham.

It is based off of a stock's EPS and book value per share (BVPS).

Graham Number = SQRT(22.5 x TTM EPS x MRQ BVPS)

The equation assumes that P/E should not be higher than 15 and P/BV should not be higher than 1.5. Stocks trading well below their Graham Number may be undervalued.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Do you think insiders are calling it right on these names? Use this list as a starting point for your own analysis.

List sorted by net insider purchases over the last six months as a percent of share float.

1. Cumulus Media Inc. (NASDAQ:CMLS): Engages in the acquisition, operation, and development of commercial radio stations in the United States. Market cap at $468.01M, most recent closing price at $3.09. Diluted TTM earnings per share at 0.46, and a MRQ book value per share value at 1.94, implies a Graham Number fair value = sqrt(22.5*0.46*1.94) = $4.48. Based on the stock's price at $3.23, this implies a potential upside of 38.73% from current levels. Net insider shares purchased over the last six months at 8.55M, which is 18.01% of the company's 47.48M share float.

2. GeoEye, Inc. (NASDAQ:GEOY): Provides earth imagery and imagery information products, as well as image processing services to the United States and foreign government defense and intelligence organizations, domestic federal and foreign civil agencies, and commercial customers. Market cap at $465.55M, most recent closing price at $20.83. Diluted TTM earnings per share at 2.2, and a MRQ book value per share value at 23.58, implies a Graham Number fair value = sqrt(22.5*2.2*23.58) = $34.16. Based on the stock's price at $24.83, this implies a potential upside of 37.59% from current levels. Net insider shares purchased over the last six months at 829.58K, which is 6.57% of the company's 12.63M share float.

3. Compass Diversified Holdings (NYSE:CODI): A public investment firm specializing in acquiring controlling stakes in small to middle market companies. Market cap at $624.52M, most recent closing price at $12.93. Diluted TTM earnings per share at 1.37, and a MRQ book value per share value at 10.3, implies a Graham Number fair value = sqrt(22.5*1.37*10.3) = $17.82. Based on the stock's price at $13.86, this implies a potential upside of 28.56% from current levels. Net insider shares purchased over the last six months at 1.59M, which is 4.05% of the company's 39.21M share float.

4. Kraton Performance Polymers Inc. (NYSE:KRA): Produces styrenic block copolymers for use in industrial and consumer applications worldwide. Market cap at $740.23M, most recent closing price at $22.96. Diluted TTM earnings per share at 2.63, and a MRQ book value per share value at 16.95, implies a Graham Number fair value = sqrt(22.5*2.63*16.95) = $31.67. Based on the stock's price at $22.71, this implies a potential upside of 39.46% from current levels. Net insider shares purchased over the last six months at 957.10K, which is 3.48% of the company's 27.52M share float.

5. Cathay General Bancorp (NASDAQ:CATY): Operates as the holding company for Cathay Bank, which offers various commercial banking products and services for individuals, professionals, and small to medium-sized businesses primarily in California. Market cap at $1.34B, most recent closing price at $16.99. Diluted TTM earnings per share at 1.15, and a MRQ book value per share value at 16.33, implies a Graham Number fair value = sqrt(22.5*1.15*16.33) = $20.56. Based on the stock's price at $16.65, this implies a potential upside of 23.46% from current levels. Net insider shares purchased over the last six months at 1.46M, which is 2.03% of the company's 71.80M share float.

*Insider, BVPS, and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 5 Insider Stock Picks Undervalued By The Graham Number