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We're all aware of the turbulence the markets have seen over the past month with commentators spewing "Sell in May and go away" and then the masses were all too happy to oblige. However, in the rapid, powerful move down which the markets have made, without doubt, some bargains are emerging as a result. At Insider-Alerts.com I'm looking for those special situations, where because of market inefficiencies, bargain (or overvalued) scenarios develop, and the insiders give us the first tips that it's happening. One such situation which has developed is with an institutional pharmacy services company, PharMerica (PMC).

On June 14, insiders made open market purchases of 55,500 shares of common stock at prices in the mid-$9 per share area. The purchases were by CEO Gregory Weishar, CFO Michael Culotta, and Officer/EVP William Monast. We were first alerted to the situation at PharMerica when Weishar purchased 20,000 shares back on February 29 with the stock at $12.30. This latest purchasing, by multiple insiders, for more shares, caught our attention to an even greater degree.

Monitoring the insider transactions/filings is only the first step in any analysis to determine if a stock is a good prospective buy (or sell). I focus on a couple of key criteria in coming up with an overall view. The points I focus on are:

  1. How many shares were bought/sold in relation to the amount owned before the transactions?
  2. Is the stock price near its recent or long-term high or low?
  3. What do the fundamentals and earnings picture of the company look like?
  4. Are there any other items of interest that may raise red or green flags?

1. How many shares were bought/sold in relation to the amount owned before the transaction.

WhoShares PurchasedShares After
Culotta15,000158,208
Monast5,00047,010
Weishar35,500600,892*

* - across three accounts, 592,392 direct ownership

Overall, the 55,500 shares purchased represent less than 10% of the amount of shares owned before the transactions. However, at around $9.50/share, this is roughly $500,000 worth of shares purchased. It's worth noting that prior to the Weishar purchase of 20,000 shares on February 29, the last purchases were in the second half of 2010 with the stock in the mid-$7 to mid-$8 range. This occurred after the stock fell from $16 just a few months earlier. Coincidentally, at that time Weishar once again was first to purchase alone, then followed by an additional purchase by himself together with others three months later as the shares fell further. It looks exactly the same as what took place this time around.

View: Positive

2. Is the stock price near its recent or long-term high or low.

The last time the stock traded below $10/share was the last time multiple insiders were purchasing - second half of 2010. Over the past month, the stock has been extremely weak continually setting 52-week lows as well as multi-year lows.

View: Positive

3. What do the fundamentals and earnings picture of the company look like?

Ironically, the last earnings announcement was extremely good. The company beat estimates on both top and bottom line. Still, since the May 3 announcement, the stock was off by a good 20%.

With the earnings announcement, the company reaffirmed guidance, 2012 full year earnings estimates are at $1.21/share giving a forward PE of 8.6 at today's closing price of $10.47. Book value is $14.27/share (though roughly $10/share of it is goodwill and intangibles), debt is a modest $272 million, forward PEG is 0.53, P/S is 0.15. All around, from a fundamental perspective, it's difficult to find much to be even mildly negative about.

View: Overly Positive

4. Are there any other items of interest that may raise red or green flags?

These days anything related to healthcare can be risky. As a nation, we are all intimately aware of the problems our system has, how the government throws more uncertainty into the works, and how insurance companies continue to reduce payouts and deny claims, yet at the same time raise premiums to those being insured. That being said, PharMerica is in the thick of all this.

What offsets the uncertainty in my mind are the strong fundamentals at this time. Further, over the past four quarters, the company has easily surpassed earnings estimates by wide margins.

View: Neutral

Overall View: Overly Positive

Conclusions:

In my mind, the insider purchases at PharMerica was a clear signal that the market had unjustly knocked the stock down too far. Weishar's purchase of 20,000 shares in February was enough to indicate things were not as bad as the market was predicting. The excellent earnings announced on May 3 was confirmation that the stock had been beaten up too much. Finally, the purchases last week by the three senior officers was basically the bells and flashing red signals that things had gone way too far. I don't think these folks could do much more at this point besides pulling out a megaphone and shouting into it. Since the purchases, the stock has rebounded a good 10%, but is still 15% below the price Weishar was purchasing back in February.

I do not make buy or sell recommendations when it comes to stocks. I like to monitor what the insiders are doing, report on the interesting situations and let people draw their own conclusions.

As with any investment, always do your own research and analysis before buying or selling. Remember, no matter how low the stock price is, it can always go lower.

Source: Key Insider Purchases At PharMerica