The stock market has seen a substantial drop of about 10% off the recent highs, however, many low priced stocks have seen even sharper drops. Small companies often see much more volatility than large capitalization stocks. For example, a company like General Electric (GE) might only see a small up or down move in the stock, even when major news is announced. Basically, General Electric is a stock that rarely moves big. By contrast, small to mid capitalization stocks often see major, even exaggerated swings in the stock price. This poses more risk, but also more potential reward, if you can buy a bargain stock after an unwarranted drop. One way to gauge the right time to buy stocks like this is by following insiders. When insiders buy shares, especially after a large decline, it can often be a strong signal for other investors to follow. Here are a few stocks trading below $8 per share with notable insider buying:
Brocade Communications Systems, Inc. (BRCD) shares were trading for about $6, earlier this year, but a market correction and disappointing earnings have taken a toll on the stock. This company develops and manufactures data storage and networking equipment, and the competitive pressures in these industries are very high. Brocade reported that second quarter revenues were $543.4 million, which was a decrease of 1% year-over-year. This resulted in diluted earnings of 8 cents per share for the quarter. After these results were announced the stock dropped, and it now appears undervalued. Brocade trades below book value, which is $4.75 per share. It also trades at less than 8 times earnings, which is below the market average of about 13 times. At least one insider is taking advantage of the low stock price: On June 5, 2012, Michael Klayko, an officer, bought 50,000 shares in a transaction valued at about $219,499.
Here are some key points for BRCD:
Current share price: $4.54
The 52 week range is $3.18 to $7.30
Earnings estimates for 2012: 61 cents per share
Earnings estimates for 2013: 60 cents per share
Annual dividend: none
Magnum Hunter Resources Corporation (MHR) is growing fast thanks to significant exploration and production goals set by management.
However, the pace of development has come at a cost to shareholders. The company recently announced a capital raise in order to fund a recent acquisition. The company sold stock at $4.50 per share, and the price has yet to fully recover as it now trades around $3.90. The combination of a market correction, a big drop in oil prices, and the secondary offering have really punished the stock. Unless oil prices drop further, this could be an ideal time for investors to go bottom-fishing. Magnum has high-potential projects in the Marcellus and Eagle Ford Shale areas, which should allow the company to continue posting strong production and revenue growth. On June 5, 2012, Stephen C. Hurley, an officer, bought 10,000 shares in a transaction valued at about $37,100.
Here are some key points for MHR:
Current share price: $3.89
The 52 week range is $2.33 to $7.90
Earnings estimates for 2012: 1 cents per share
Earnings estimates for 2013: 35 cents per share
Annual dividend: none
Apollo Investment Corporation (AINV) shares are down nearly 30% from the 52-week high of $10.65. At current levels, the stock appears to have solid support, thanks to a very strong dividend which yields over 10%. Also, the stock trades below book value, which is $8.55 per share. Apollo makes investments in a diversified range of companies like restaurants, food distribution, healthcare, technology and other industries, by purchasing stock or making loans. The returns generated from the gains are used to pay shareholders a very generous dividend on a quarterly basis. The stock can be volatile and that makes it a strong candidate to buy on dips. It traded down to about $6.40 in late May, but it has been trending up lately. Recent insider buying in this company should add confidence to investors considering an investment. On June 7, 2012, Edward J. Goldthorpe, an officer, bought 20,000 shares in a transaction valued at about $155,000.
Here are some key points for AINV:
Current share price: $7.49
The 52 week range is $5.97 to $10.65
Earnings estimates for 2012: 85 cents per share
Earnings estimates for 2013: 87 cents per share
Annual dividend: 80 cents per share which yields 10.5%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.