Insider buying is often a sign of potential positive developments within a company, particularly if the insiders who are buying have a good track record with respect to their own buying. This is, however, only a secondary indicator and should not be relied upon solely when making the decision on whether to purchase a security. Insider buying in and of itself will not make a stock move higher, but can provide a further clue if all the other pieces of the puzzle - e.g., earnings, sales, return on equity, profit margins, etc. - are in place.
I screened for companies where at least one insider made a buy filed on August 29. I chose the top five companies with insider buying in dollar terms. Here are the five stocks:
1. Forest Laboratories (FRX) longstanding global partnerships and track record developing and marketing pharmaceutical products in the United States have yielded its well-established central nervous system and cardiovascular franchises and innovations in anti-infective, respiratory, gastrointestinal, and pain management medicine. The company's pipeline, the most robust in its history, includes product candidates in all stages of development across a wide range of therapeutic areas.
Carl Icahn purchased 331,406 shares on August 27-29, 1,343,837 shares on August 22-24, 1,962,011 shares on August 17-21 and currently controls 30,198,940 shares of the company. The company has 265,693,834 shares outstanding which makes Carl Icahn a 11.4% owner of the company.
The company reported the fiscal year first-quarter 2013 (ending June 30) financial results on July 17 with the following highlights:
|Net income||$55.3 million|
From July 17:
The company expects to hear from the U.S. Food and Drug Administration (FDA) in the coming weeks regarding the approval status of aclidinium for the long-term maintenance treatment of COPD and later this summer the company expects to hear on the approval status of linaclotide for the treatment of irritable bowel syndrome with constipation (IBS-C) and chronic constipation (CC). Assuming approval for both products the company will have two new product launches during fiscal 2013.
Forest Laboratories announced on August 27 that its newly constituted Board of Directors adopted a stockholder rights plan and declared a dividend distribution of one Preferred Share Purchase Right on each outstanding share of Forest Laboratories common stock.
The Board adopted the rights plan in response to the recent rapid accumulation of a significant portion of Forest's outstanding common stock. The rights plan is intended to protect the company and its stockholders from efforts to obtain control of the company that are inconsistent with the best interests of the company and its stockholders. The rights plan also has an exception for an offer for all shares that is accepted by a majority of the company's shares and treats all shareholders equally.
Howard Solomon, Chairman and Chief Executive Officer of Forest, said:
"After concluding a second proxy contest during which he repeatedly - and erroneously - disparaged Forest's business model and growth prospects, Mr. Icahn increased his already significant position in Forest with rapid open market purchases. In light of these recent developments, the Board has adopted a stockholder rights plan that is designed to ensure that all of Forest Laboratories' stockholders receive fair and equal treatment in the event of any proposed takeover of the Company, to guard against abusive tactics to gain control of Forest Laboratories without paying all stockholders a premium for that control, and to enable all Forest Laboratories stockholders to realize the long-term value of their investment in the Company."
The Rights will expire in 12 months unless the rights plan is ratified by the company's stockholders. The Rights will be exercisable only if a person or group acquires 12% (or 20% in the case of a 13G Institutional Investor, as defined in the rights plan) or more of Forest's common stock.
The stock did see some insider selling in the December 2011 - April 2012 time frame. Carl Icahn has been the only insider buying the shares since December 2010. Carl Icahn owns currently 11.4% of the shares. With the rights plan announced on Monday, Carl Icahn can't acquire more than 12% of the company's stock. The stock could reach $40 after the coming approvals of aclidinium and linaclotide in the near future. Linaclotide approval date is in September.
2. Universal Display Corporation (PANL) is a leader in developing and delivering state-of-the-art, organic light emitting diode (OLED) technologies, materials and services to the display and lighting industries. Founded in 1994, the company currently owns or has exclusive, co-exclusive or sole license rights with respect to more than 2,700 issued and pending patents worldwide, including those acquired from Fujifilm. Universal Display licenses its proprietary technologies, including its breakthrough high-efficiency UniversalPHOLED phosphorescent OLED technology that can enable the development of low power and eco-friendly displays and white lighting. The company also develops and offers high-quality, state-of-the-art UniversalPHOLED materials that are recognized as key ingredients in the fabrication of OLEDs with peak performance. In addition, Universal Display delivers innovative and customized solutions to its clients and partners through technology transfer, collaborative technology development and onsite training.
Discovery Global Opportunity Master Fund purchased 139,400 shares on August 27-28 and currently holds 4,814,946 shares of the company. The company has 46.5 million shares outstanding which makes Discovery Global Opportunity Master Fund a 10.3% owner of the company.
The company reported the second-quarter financial results on August 8 with the following highlights:
|Net income||$11.0 million|
The company believes that its revenues will be in the range of $90 million to $110 million for fiscal 2012.
The stock has a $68 price target from the Point and Figure chart. Discovery Global Opportunity Master Fund has been the only insider buying the shares since June 2011. The stock has seen steady insider selling by some of the other insiders. The stock is currently trading at a P/E ratio of 88.43 and a forward P/E of 24.80. I have a neutral bias for the stock currently.
3. ServiceSource (SREV) is the global leader in service revenue management, partnering with technology-based companies to optimize maintenance, support and subscription revenue streams, while also improving customer relationships and loyalty. ServiceSource helps customers increase service revenue contract renewal rates, on average, by over 15 percentage points and, in some cases, up to 44 percentage points. ServiceSource delivers these results via a cloud-based solution, combining its Service Revenue Performance Suite of applications with dedicated service sales teams, leveraging a proprietary Service Revenue Intelligence Platform of transaction data, benchmarks and best practices. ServiceSource offers its service revenue management solution on a unique pay-for-performance business model that enables a success-driven, shared-risk partnership. The company is headquartered in San Francisco, and manages service revenue performance for customers across the globe in more than 35 languages.
The company reported the second-quarter financial results on July 31 with the following highlights:
|Non-GAAP net income||$0.6 million|
The company provided the following commentary on its expected business outlook:
- Third quarter 2012: The company expects revenue for the third quarter of 2012 to be in the range of $57.5 to $59.5 million, adjusted EBITDA of approximately $0.5 to $1.5 million, GAAP net loss of $7.5 to $8.5 million and non-GAAP net loss per share to be between breakeven to a loss of $0.02 per share.
- Full year 2012: The company reiterated its guidance for 2012 revenue of $246 to $249 million, adjusted EBITDA between $16 to $18 millionand non-GAAP net income per diluted share in the range of $0.05 to $0.07. Reflecting the one-time, non-cash charge related to the deferred tax assets and the revised outlook on GAAP taxes for the year, the company has revised its guidance for GAAP net loss to range from $46.5 to $48.5 million.
The stock has a $6 price target from the Point and Figure chart. Barry Reynolds' insider buy was the first one in the stock since at least February 2012. The stock has seen steady insider selling since February 2012. The stock is currently trading at a forward P/E of 65.43. I am currently not planning to take a long position in the stock.
4. Orchard Supply Hardware Stores Corporation (OSH) is a neighborhood hardware and garden store focused on paint, repair and the backyard. Founded as a purchasing cooperative in San Jose in 1931, today the stores average 44,000 square feet of enclosed retail space and 8,000 square feet of exterior nursery and garden space, carrying a broad assortment of merchandise for repair, maintenance and improvement needs for the home and backyard. As of July 28, 2012, the company had 88 stores in California.
Edward Lampert purchased 235,424 shares of Series A Preferred Stock on August 27. Edward Lampert is a 10% owner according to SEC filings.
The company reported the first-quarter financial results on June 12 with the following highlights:
|Net loss||$4.5 million|
Orchard Supply Hardware Stores Corporation reported on August 1 preliminary net sales of $194.0 million in the second quarter of fiscal 2012 compared to $196.4 million in the second quarter of fiscal 2011.
Mark Baker, President and Chief Executive Officer commented on August 1:
"The environment remains challenging and our business was more promotional than anticipated, which will likely impact margins in the second quarter. We continue to expect positive comparable store sales for fiscal 2012, as our in-store marketing and merchandising initiatives gain increased traction during the second half of the year."
The stock has a $9.5 price target from the Point and Figure chart. The stock has seen only two insider buy transactions and four insider sell transactions this year. The company has a book value of $10.89 per share which I would expect to act like a support for the stock.
5. MCG Capital Corporation (MCGC) is a solutions-focused commercial finance company providing capital and advisory services to middle-market companies throughout the United States.
Richard Neu purchased 72,577 shares on August 28 and currently holds 242,259 shares of the company. Mr. Neu has been Chairman of the Board since April 2009 and Chief Executive Officer of the company since October 2011.
The company reported the second-quarter financial results on July 31 with the following highlights:
|Net loss||$7.0 million|
The company targets future annual base compensation and benefits levels of approximately $4.0 million to $5.0 million beginning in 2013. In addition, the company is lowering its projected embedded annual non-compensation cost structure to approximately $5.0 million to $6.0 million from the previous projection of approximately $5.5 million to $6.5 million.
The company expects to incur costs associated with its transition plan of approximately $0.10 per share to $0.15 per share, primarily attributable to severance costs and the related acceleration of restricted stock for terminated employees, the amendment and pay-off of SunTrust Warehouse financing facility and employee compensation, primarily in the form of retention and inducement payments.
During the three months ended June 30, 2012, the company incurred costs associated with its transition plan of $3.1 million or $0.04 per share, consisting of $0.8 million in accelerated deferred financing fees and other costs associated with the payoff of SunTrust Warehouse financing facility that the company recorded as interest expense, $0.3 million in retention and inducement payments that the company recorded as salaries and benefits, $0.2 million in amortization expenses associated with the elimination of positions that the company recorded as amortization of employee restricted stock awards, and $1.8 million in severance related expenses that the company recorded as general and administrative expense. For the six months ended June 30, 2012, the company incurred $6.8 million, or $0.09 per share, of costs associated with its transition plan.
Given the accelerated level of monetizations and payoffs experienced through the first six months of 2012, together with the slower than anticipated pace of new originations, the company is presently carrying liquidity levels substantially higher than previously forecasted. The company remains committed to making disciplined investments at appropriate risk-adjusted yields.
Absent a significant pickup in liquidity redeployment opportunities or an increase in leverage from a second SBIC license or other sources, the company would anticipate 2013 NOI levels of $0.45 to $0.55 per share, a reduction from the previous forecast of $0.50 to $0.60 per share.
The stock has a $7 price target from the Point and Figure chart. The company has a book value of $5.26 per share and a dividend yield of 12.15%. The stock is currently trading at a forward P/E of 10.02. The stock has seen two insider buy transactions and five insider sell transactions this year. I would recommend buying the shares below the book value of $5.26 per share.