When insiders buy shares of their own company I take notice. Sure, there are times when a newly-elected director is forced to buy shares but I still view increases in insider purchases as a reason to do further research.
Based on data provided by Finviz, the following 10 purchases were the largest for the past 10 days (ending August 30, 2012). The first table shows the company stock bought, who bought it, their relationship with the company and when they purchased the stock. The second table shows how many shares they acquired, the value and their total holdings.
Note: I have not looked into the reasons behind the purchases. I am simply using the purchase as a flag to look further into the company's financial profile.
Table 1:
| Ticker | Company | Owner | Relationship | Date |
| (BNCN) | BNC Bancorp | Aquiline BNC Holdings LLC | Director | Aug-24 |
| (FDML) | Federal-Mogul Corp. | ICAHN CARL C | Non-executive Board Chairman | Aug-30 |
| (AXS) | Axis Capital Holdings Limited | NICHOLS JOHN DRAKE | CEO, AXIS Re | Aug-30 |
| (GMCR) | Green Mountain Coffee Roasters Inc. | DEL VECCHIO JULES A | Director | Aug-30 |
| (XRM) | Xerium Technologies Inc. | Wilson James Forbes | Director | Aug-29 |
| (PRSC) | Providence Service Corp. | Coliseum Capital Management, L | Director | Aug-27 |
| Providence Service Corp. | Coliseum Capital Management, L | Director | Aug-23 | |
| (MCGC) | MCG Capital Corporation | NEU RICHARD W | Chief Executive Officer | Aug-28 |
| (CYBX) | Cyberonics Inc. | Olin Bryan D | VP, Quality | Aug-30 |
| (CHH) | Choice Hotels International Inc. | ALEXANDER STILES BARBARA | Director | Aug-27 |
| (PLCM) | Polycom, Inc. | MERCER D SCOTT | Director | Aug-23 |
Table 2:
| Ticker | Owner | #Shares | Value ($) | #Shares Total |
| BNCN | Aquiline BNC Holdings LLC | 12,790 | 11,807,344 | 12,790 |
| FDML | ICAHN CARL C | 239,149 | 2,250,392 | 76,697,804 |
| AXS | NICHOLS JOHN DRAKE | 30,000 | 1,008,141 | 80,000 |
| GMCR | DEL VECCHIO JULES A | 20,000 | 481,267 | 260,719 |
| XRM | Wilson James Forbes | 100,300 | 426,275 | 2,047,282 |
| PRSC | Coliseum Capital Management, L | 35,413 | 401,938 | 1,954,530 |
| PRSC | Coliseum Capital Management, L | 29,530 | 338,709 | 1,916,317 |
| MCGC | NEU RICHARD W | 72,577 | 329,478 | 242,259 |
| CYBX | Olin Bryan D | 18,750 | 276,000 | 82,636 |
| CHH | ALEXANDER STILES BARBARA | 8,000 | 256,000 | 10,924 |
| PLCM | MERCER D SCOTT | 25,000 | 237,750 | 25,000 |
If these people are interested, so am I. So let's take a deeper look into the companies being acquired. (Note: this is not a solicitation to buy these stocks. Always do your own due diligence and speak with a financial advisor before investing.)
Table 3 below shows the sectors, size and buy value as a percent of market cap for the shares being acquired. As it relates to market cap, it appears like the BNCN purchase was the most substantial. This, however, was somewhat of an unusual transaction because Aquiline purchased the shares directly from the US Treasury as part of a TARP auction at a price well above the listed NASDAQ price.
Table 3:
| Ticker | Industry | Market Cap ($M) | Buy Value ($M) | |
| BNCN | Regional - Mid-Atlantic Banks | 116.43 | 11.81 | 10.14% |
| FDML | Auto Parts | 925.7 | 2.25 | 0.24% |
| AXS | Property & Casualty Insurance | 4339.84 | 1.01 | 0.02% |
| GMCR | Processed & Packaged Goods | 3780.93 | 0.48 | 0.01% |
| XRM | Paper & Paper Products | 67.56 | 0.43 | 0.63% |
| PRSC | Specialized Health Services | 149.36 | 0.74 | 0.50% |
| MCGC | Asset Management | 343.68 | 0.33 | 0.10% |
| CYBX | Medical Appliances & Equipment | 1377.07 | 0.28 | 0.02% |
| CHH | Lodging | 1826 | 0.26 | 0.01% |
| PLCM | Processing Systems & Products | 1842.67 | 0.24 | 0.01% |
Table 4 looks at valuations. Based on forward earnings projections, all except for CYBX and CHH have sub-15 P/E ratios. On a price-to-book basis, FDML, AXS and MCGC look interesting, as they are all trading below book value. Moreover, FDML is trading close to cash.
Table 4:
| Ticker | P/E | Forward P/E | P/S | P/B | P/Cash |
| BNCN | 15.2 | 10.13 | 1.09 | 1.33 | 5.04 |
| FDML | 5.2 | 0.14 | 0.99 | 1.29 | |
| AXS | 7.42 | 9.04 | 1.13 | 0.73 | 5.78 |
| GMCR | 11.2 | 9.72 | 1.04 | 1.71 | 27.2 |
| XRM | 110.75 | 4.92 | 0.12 | 2.01 | |
| PRSC | 12.68 | 11.08 | 0.15 | 1.37 | 2.98 |
| MCGC | 10.11 | 4.54 | 0.88 | 2.18 | |
| CYBX | 39.01 | 27.28 | 6.3 | 7.5 | 14.25 |
| CHH | 15.68 | 16.24 | 2.76 | 3.72 | |
| PLCM | 21.27 | 14.27 | 1.24 | 1.3 | 3.22 |
Not many of these stocks pay dividends, as indicated in Table 5 below. Of those that do, all except for MCGC (which has negative EPS) has a reasonably low payout ratio. This suggests the dividends may be sustainable.
Table 5:
| Ticker | Dividend Yield | Payout Ratio |
| BNCN | 2.63% | 31.40% |
| FDML | ||
| AXS | 2.82% | 21.00% |
| GMCR | 0.00% | |
| XRM | 0.00% | |
| PRSC | 0.00% | |
| MCGC | 12.04% | negative |
| CYBX | 0.00% | |
| CHH | 2.35% | 36.44% |
| PLCM | 0.00% |
On a historical basis, AXS, GMCR and CYBX have provided a decent ROA, ROE and operating margin (Table 6 below). Note that FDML has been quite negative in the past, but (as indicated above) the street is forecasting a return to profitability. Perhaps this is what Carl Icahn (the buyer) is betting on?
Table 6:
| Ticker | Return on Assets | Return on Equity | Operating Margin |
| BNCN | 0.34% | 4.99% | 6.35% |
| FDML | -3.05% | -19.07% | -3.74% |
| AXS | 3.44% | 11.61% | 17.03% |
| GMCR | 11.18% | 17.17% | 14.67% |
| XRM | 0.09% | 7.04% | 8.10% |
| PRSC | 3.06% | 11.96% | 2.62% |
| MCGC | -8.77% | -17.27% | 30.23% |
| CYBX | 17.04% | 20.10% | 27.89% |
| CHH | 18.31% | 27.79% | |
| PLCM | 4.89% | 6.49% | 6.28% |
Finally, the two graphs below illustrates the performance of each stock over the past year. The graph shows a wide range of returns, with some stocks (e.g. GMCR) taking a huge hit.
Opportunity knocks for some.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Data source: Finviz. This is not advice. While the author makes every effort to provide high quality information, the information is not guaranteed to be accurate and should not be relied on. Investing involves risk and you could lose all your money. Consult a professional advisor before making any investing decisions.
