While it makes sense to buy large-cap stocks for safety and dividend income, it is not the most exciting part of investing. Stocks like Chevron (CVX) make sense because it is a highly liquid investment, it pays a solid yield of about 3.2%, and it has a strong balance sheet. It is also providing fuel, which is a basic need for businesses and consumers.
Large cap dividend stocks make sense to have as core holdings, but it can be very rewarding to buy low-priced and small cap stocks that can lead to major profits. For example, Sprint (S) shares were trading around $2.25 in May, but recently just went over $5 per share. Those types of gains make buying low-priced stocks worth the risk and effort.
There are many low-priced stocks in the market, so one way to narrow down this universe is by looking for undervalued stocks that also have meaningful new insider buying. This strategy led some investors into buying Sprint shares before the stock doubled in value because Sprint CEO, Daniel Hesse, bought 50,000 shares for $2.38 in April 2012. Investing when insiders buy can make sense because company executives and other insiders tend to know their companies better than most analysts and investors. With that in mind, here are two low-priced stocks that appear undervalued, and have also recently seen strong insider buying:
Beazer Homes USA, Inc. (BZH) has been facing challenges from the multi-year decline in home prices, but there is reason to be more optimistic for a turnaround. This leading homebuilder has new developments in California, Nevada, Arizona, Texas, Florida, New York and other states. Recent data supports that the housing market might be ready for an upturn, and investors are turning more positive on homebuilding stocks. While Beazer has been posting losses, and even though analysts expect it to continue to do so going forward, the shares could be heading higher. At least one insider wants more shares at these levels: On August 7, 2012, Brian Beazer, a director, bought 20,000 shares in a transaction valued at about $52,000.
Here are some key points for BZH:
Current share price: $2.73
The 52 week range is $1.35 to $3.98
Earnings estimates for 2012: a loss of $1.06 per share
Earnings estimates for 2013: a loss of 72 cents per share
Annual dividend: none
Shares of Knight Capital Group, Inc. (KCG) plunged recently after the company announced that technical glitches had created erroneous trades in dozens of major stocks. This led to a mini "flash crash" for some stocks, and caused some of Knight's largest customers to route trades to other companies. The company was able to secure new funds after the incident, and it continues to provide electronic market making services to many institutions. It appears that Knight has gained at least some of its customers back, and the company looks like it will survive this event. According to a recent posting by Theflyonthewall.com, trading volume for Knight is back up to very
strong levels. The post states:
Knight Capital's share of S&P trades has rebounded significantly, and the company is once again ranked first or second in its sector, according to Business Insider, which cited data from Thomson Reuters.
Knight Capital sold about $400 million to a group of investors to strengthen the balance sheet, and the stock is getting attention from some bargain hunters. On August 8, 2012, insider Getco Strategic Investments, bought 53,448 shares in a transaction valued at about $169,000.
Here are some key points for KCG:
Current share price: $2.84
The 52 week range is $2.27 to $14
Earnings estimates for 2012: a loss of 57 cents per share
Earnings estimates for 2013: a profit of 36 cents per share
Annual dividend: none
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.