Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message| ()  

A study (pdf) titled "Predictive and Statistical Properties of Insider Trading" by James H. Lorie and Victor Niederhoffer reached the following conclusion:

This study indicates that proper and prompt analysis of data on insider trading can be profitable, although almost all previously published studies have reached the contrary conclusion. When insiders accumulate a stock intensively, the stock can be expected to outperform the market during the next six months. Insiders tend to buy more often than usual before large price increases and to sell more than usual before price decreases.

Based on the findings of this encouraging insider trading study, I screened for companies where at least one insider made a buy transaction filed on September 17. I chose the top seven companies with insider buying in dollar terms. Here is a look at the seven stocks:

1. Office Depot (ODP) provides office supplies and services through 1,680 worldwide retail stores, a field sales force, top-rated catalogs and global e-commerce operations. Office Depot has annual sales of approximately $11.5 billion, employs about 39,000 associates, and serves customers in 60 countries around the world.

Click to enlarge

Insider buys

Starboard Value LP purchased 6,916,981 shares on September 12-14. Starboard Value LP is a 13.3% owner of Office Depot.

Financials

The company reported the second-quarter financial results on August 7 with the following highlights:

Revenue$2.5 billion
Net loss$64.3 million
Cash$422.7 million

Outlook

The company affirmed its outlook on September 5 as follows:

  • The company expects to achieve full-year 2012 adjusted EBIT in the $125 to $135 million range, an increase of approximately $5 to $10 million from 2011; and
  • The company also expects full-year 2012 free cash flow to be in the $80 to $100 million range from an operational perspective, an increase of approximately $10 to $30 million from 2011.

My analysis

There have been two insider buy transactions this year. The latest insider sell transaction was in June 2011. The company has a book value of $3.86 per share and a cash position of $1.48 per share. The stock could find some support from the 200 day moving average currently at $2.5 level which could be a good entry point for the stock.

2. Response Genetics (RGDX) is a CLIA-certified clinical laboratory focused on the development and sale of molecular diagnostic testing services for cancer. The company's technologies enable extraction and analysis of genetic information from genes derived from tumor samples stored as formalin-fixed and paraffin-embedded specimens.

The company's principal customers include oncologists and pathologists. In addition to diagnostic testing services, the company generates revenue from the sales of its proprietary analytical pharmacogenomic testing services of clinical trial specimens to the pharmaceutical industry. The company's headquarters is located in Los Angeles, California.

Insider buys

Bridger Management purchased 3,000,000 shares on September 13 pursuant to a private placement. Bridger Management currently controls 6,000,000 shares of Response Genetics. Response Genetics has 32,797,625 shares outstanding, which makes Bridger Management a 18.3% owner of Response Genetics.

Financials

The company reported the second-quarter financial results on August 14 with the following highlights:

Revenue$3.84 million
Net loss$2.7 million
Cash$2.6 million

Response Genetics announced on September 13 that it had entered into a purchase agreement with GlaxoSmithKline (GSK) and one of its existing significant stockholders, Bridger Management, to raise $8.8 million from the private placement.

Outlook

Thomas Bologna, the company's Chairman & Chief Executive Officer commented on August 14:

"We have made many changes in the Company since the beginning of the year and we believe we have made great strides, both financially and strategically. Since the fourth quarter of 2011, gross margins have increased, expenses have been reduced, and losses have subsequently decreased. Additionally, we expect our third quarter operating results to continue this favorable trend, and in fact, we believe the results will be better based on additional actions that we have taken since the end of the second quarter."

My analysis

There have been 11 insider buy transactions and 12 insider sell transactions this year. The 200-day moving average is currently at $1.5 level, which could act like resistance for the stock. The 50-day moving average is at $1 level, which could act like support for the stock. I am not expecting the company to be profitable this year. I would recommend waiting for a pullback to the $1 level before entering long this stock.

3. Engility (EGL) is a pure-play Government Services contractor providing highly-skilled personnel wherever, whenever they are needed, in a cost effective manner. Headquartered in Chantilly, VA, Engility is a leading provider of systems engineering services, training, program management, and operational support for the U.S. government worldwide, with approximately 8,000 employees worldwide.

Insider buys

Abrams Capital Management purchased 114,108 shares on September 13-17 and currently controls 1,966,932 shares of the company. Engility has 16,302,993 shares outstanding which makes Abrams Capital Management a 12% owner of Engility.

Financials

The company reported the second-quarter financial results on August 13 with the following highlights:

Revenue$432.8 million
Net income$15.0 million
Cash$10.5 million

Outlook

Based upon operating and business development performance through the second quarter, the company expects its fiscal year 2012 results will be as follows:

2012 Fiscal Year Outlook
Revenue$1.6 billion
Diluted EPS range$2.30-$2.55

My analysis

There have been two insider buy transactions since the spin-off from L-3 Communications Holdings (LLL) on July 17, 2012. There has not been any insider selling since the spin-off. The stock is trading at a forward P/E ratio of 7.00. The stock could be a good pick from the current level.

4. Bruker Corporation (BRKR) is a leading provider of high-performance scientific instruments and solutions for molecular and materials research, as well as for industrial and applied analysis.

Insider buys

  • Joerg Laukien purchased 100,000 shares on September 14 and currently holds 18,187,755 shares of the company. Joerg Laukien joined the board of directors of Bruker Corporation in January 2005.
  • Frank Laukien purchased 100,000 shares on September 14 and currently holds 39,059,445 shares of the company. Frank Laukien is the Chairman, President and CEO of Bruker Corporation and he is also President of Bruker Daltonics.

Financials

The company reported the second-quarter financial results on July 31 with the following highlights:

Revenue$420.7 million
Net income$9.9 million
Cash$243.6 million

Outlook

Frank Laukien, President and CEO of Bruker Corporation, commented on July 31:

"Despite softening demand in some of our key end markets, particularly in Europe, we are pleased with our strong organic revenue growth in the first half of 2012. Also, our backlog remained very healthy as of the end of the second quarter. However, we are disappointed with our profitability in the second quarter of 2012. Our profitability was adversely affected by insufficient backlog conversion, gross margin pressures and higher spending in certain businesses. We remain committed to improving the profitability and cash flow of the company, and we are taking steps to evaluate and improve our cost structure, and to accelerate our backlog conversion."

Charles Wagner, Chief Financial Officer of Bruker Corporation, added:

"Given softening demand in certain key markets, and the lower than expected profitability of the company in the first six months of 2012, we are re-evaluating our business plans for the second half of 2012. While some improvements to the company's cost structure will be realized in the current year, other initiatives will require investment and time before they yield meaningful benefits. Accordingly, we are reducing our previously announced 2012 financial goals. In addition, we will provide an updated multi-year outlook in coming quarters."

Bruker's updated financial goals for the full year of 2012, which replace all previously announced goals, are:

  • Revenue of $1.70-$1.75 billion
  • Adjusted EPS of $0.65-$0.70

My analysis

There have only been two insider buy transactions this year which were both filed on September 17. The latest insider sell transaction was filed on March 2011. The stock is trading at a forward P/E ratio of 15.92. I have a neutral bias for the stock currently.

5. Opko Health (OPK) is a publicly traded healthcare company involved in the discovery, development, and commercialization of pharmaceutical products, vaccines, and diagnostic products.

Insider buys

Phillip Frost purchased 55,000 shares on September 14 and currently controls 131,730,400 shares of the company. The company has 297,836,707 shares outstanding, which makes Mr. Frost a 44.1% owner of the company. Phillip Frost is the CEO and chairman of the company. Mr. Frost has been a buyer almost every day this year. His net worth was $2.3 billion as of March 2012.

Financials

The company reported the second-quarter financial results on August 9 with the following highlights:

Revenue$10.2 million
Net loss$10.8 million
Cash$55.3 million

Upcoming Milestones

  • The company expects to begin marketing its test for Alzheimer's disease in 2013. The company believes that this test could initially be useful in stratifying patients for ongoing clinical trials of potential Alzheimer's drugs, as well as to confirm the diagnosis in a clinical setting and to track the progression of the disease or effectiveness of a therapeutic in a clinical trial.
  • The company has already obtained a CE Mark for its point-of-care diagnostic test for prostate specific antigen [PSA] using its system in Europe, and the company intends to launch the PSA test in Europe in the second half of 2012.
  • In December 2011, the company commenced a multi-center study in the U.S. for the PSA test, which is designed for 510(k) clearance and potential waiver under The Clinical Laboratory Improvement Amendments of 1988. The company intends to submit its application to the Food and Drug Administration for clearance of the PSA test in 2012 and expects to begin marketing the test in the U.S. in 2013.

News

On August 22 OPKO Health was awarded a contract and selected to participate in a development project directed by NASA to implement the OPKO point-of-care diagnostic platform (Claros-1) with the objective of in-orbit use on the International Space Station.

OPKO will provide a panel of assays, including Vitamin D for bone metabolism, immune health, and inflammation to be used on its Claros-1 portable analyzer. According to Phillip Frost, M.D., OPKO's Chairman and Chief Executive Officer:

"This contract is an opportunity to demonstrate the robustness and ease-of-deployment of the OPKO point-of-care system as well as the wide range of complex and high performance diagnostic tests which can be rapidly implemented for use in any environment."

My Analysis

The stock has a $2.75 price target from the Point and Figure chart. The company has several catalysts pending for 2012 and 2013. I would be watching the $4 level closely to see if it holds or not. The 200 day moving average is currently at $4.72 which could act like resistance for the stock. Phillip Frost has been buying 5-10% of the shares traded each day for months already.

6. Bill Barrett Corporation (BBG), headquartered in Denver, Colorado, explores for and develops oil and natural gas in the Rocky Mountain region of the United States.

Insider buys

Carin Barth purchased 5,000 shares on September 14. Carin Barth serves as a director of the company.

Financials

The company reported the second-quarter financial results on August 2 with the following highlights:

Revenue$160.4 million
Net income$3.3 million
Cash$20.8 million

The company's 2012 guidance is as follows:

  • Capital expenditures of $850 to $900 million, including leasehold acquisitions year-to-date.
  • Oil and natural gas production of 118 to 122 Bcfe, up 10% to 14% from 2011, narrowed from 116 to 122 Bcfe.
  • Lease operating costs per Mcfe of $0.60 to $0.65, unchanged.
  • Gathering, transportation and processing costs per Mcfe of $0.92 to $0.97, unchanged.
  • General and administrative expenses before non-cash stock-based compensation cost per Mcfe of $0.45 to $0.49, unchanged.

My analysis

The stock has a $44.5 price target from the Point and Figure chart. There have been six insider buy transactions this year. The latest insider sell transaction was in December 2011. The stock is trading at a forward P/E ratio of 31.35 and has a book value of $25.66 per share. The stock could be a good pick from here with a $44.5 target price.

7. Tuesday Morning (TUES) is a leading closeout retailer of upscale, decorative home accessories, housewares and famous-maker gifts in the United States. The company opened its first store in 1974 and currently operates 852 stores in 43 states. Tuesday Morning is nationally known for bringing its more than 9.0 million loyal customers a unique treasure hunt of high-end, first quality, brand name merchandise - never seconds or irregulars - at prices well below those of department and specialty stores and catalogues.

Insider buys

William Hunckler purchased 15,528 shares on September 13-14, 4,620 shares on September 11 and 70,588 shares on September 5. William Hunckler currently controls 160,935 shares of the company. William Hunckler serves as a director of the company.

Financials

The company reported the fiscal year 2012 (ending June 30) financial results on August 20 with the following highlights:

Revenue$812.8 million
Net income$3.9 million
Cash$39.7 million

Outlook

Net sales for fiscal 2013 are planned to be in the range of $820 million to $830 million. Comparable store sales are planned to be roughly flat and earnings per diluted share to be in the range of $0.18 to $0.23. For fiscal 2013, capital expenditures are planned to be in the range of $12 to $15 million and total square footage to increase slightly, primarily due to relocations.

My analysis

The stock has a $13.25 price target from the Point and Figure chart. The stock has seen only one insider buy transaction and one insider sell transaction this year. The stock is trading at a forward P/E of 19.53 and has a book value of $6.23 per share. I have a neutral bias for the stock currently.

Source: Top 7 Insider Buys Filed On September 17