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  • Five Highly Profitable Stocks Insiders Are Buying: SNI, AAPL, MJN, LULU, CSC

    I have identified five interesting stocks that share two unique characteristics:

    1. High insider participation as measured by the % change in insider holding over the past 6 months; and
    2. High profitability as measured by return on capital (NYSE:ROC).

    Legendary investor Peter Lynch wrote, "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise." Generally speaking, insiders are much more knowledgeable than outside investors, so insider buying is a vote of confidence in the fundamentals of the business. Furthermore, when insiders increase their holdings, then they are even more incentivized to engage in shareholder friendly actions and improve the fundamentals of the business. Thus, while a high insider ownership is good, a large positive change insider ownership is even better!

    I also considered return on capital because it is a good measure of profitability and the fundamentals of the business. For companies to create economic value, ROC must be higher than the company's cost of capital - and all the companies I have identified below are creating tons of economic value. A high percentage change in insider ownership in an unprofitable business may suggest that the company is a startup or aggressively using stock options to incentive employees to turn the company around. When combing high ROC with a high change in insider ownership, we can be more certain that the fundamentals of the company are attractive.

    Without further ado, the five unique companies I have identified that meet my strict criteria of over 20% ROC and over 20% in change in insider ownership are as follows: Scripps (NYSE:SNI), Apple (NASDAQ:AAPL), Mead Johnson (NYSE:MJN), Lululemon (NASDAQ:LULU), and Computer Sciences (NYSE:CSC).

    (click to enlarge)

    Scripps Networks Interactive develops lifestyle-oriented content for television and the Internet markets in the United States and internationally. The company operates national television networks, such as Food Network, Home and Garden Television (HGTV), Travel Channel, DIY Network (DIY), Cooking Channel, and Great American Country (GAC); and Websites, including FoodNetwork.com, HGTV.com, TravelChannel.com, DIYNetwork.com, CookingChanneltv.com, and GACTV.

    Apple designs, manufactures, and markets mobile communication and media devices, personal computing products, and portable digital music players worldwide. Its products and services include iPhone, iPod, iPad, iMac, Mac Pro, and Mac mini. The company also offers a range of software products, including iOS and OS X operating system software.

    Mead Johnson Nutrition Company manufactures, distributes, and sells infant formulas, children's nutrition, and other nutritional products. Its infant formula products include formulas for routine feeding; solutions formulas for addressing mild feeding problems, such as gas/fussiness, soy formula, lactose intolerance, anti-regurgitation, and cow's milk protein allergy risk; and specialty formula products, including formulas for addressing severe intolerance, formulas for premature and low birth weight infants, and medical nutrition products.

    Lululemon Athletica designs, manufactures, and distributes athletic apparel and accessories for women, men, and female youth. It operates in three segments: Corporate-Owned Stores, Direct To Consumer, and Other. The company's line of apparel include fitness pants, shorts, tops, and jackets for healthy lifestyle activities, such as yoga, running, and general fitness.

    Computer Sciences Corporation provides information technology (NYSE:IT) and professional services and solutions in North America, Europe, Asia, and Australia. The company’s Managed Services Sector segment offers IT outsourcing services that involve customer's technology infrastructure, including systems analysis, applications development, network operations, end-user computing, and data center management; and a range of services in various areas comprising infrastructure as a service, software as a service, business process as a service, platform as a service, cyber security managed services, and other emerging technologies and associated service delivery models.

    Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Aug 27 6:33 PM | Link | Comment!
  • Dell: The Art Of The Thieves

    On 2/9/2013, I wrote an article titled "Dell: The Art Of The Steal" urging shareholders to vote against Michael Dell and Silver Lake's attempt to buyout Dell (NASDAQ:DELL) shareholders at a ridiculously low price of $13.65 per share.

    A lot has happened since then. For one thing, the share price has gone up to $14.22 (3/8/2013 closing price) from the $13.63 closing price on the day I wrote the above mentioned article. This article is a follow up on what has happend, and on how my views has changed.

    For the most part, there was only painful silence on the buyout issue - literally: Michael Dell won't speak about it, pretending it is not even a material issue during analyst calls.

    I want to follow up on the Dell buy-out issue because things have gone from interesting to "very interesting indeed" in a very short period of tiem, which is nicely captured by a WSJ article titled "Icahn Rattles Dell Buyout Proposal" (3/7/2013):

    "'We see no reason that the future value of Dell should not accrue to all the existing Dell shareholders,' Mr. Icahn wrote to a Dell special board committee, insisting it agree to his conditions or hold a vote for a replacement board that would...

    "Dell said that in the past it has considered a leveraged recapitalization and found it inferior to the proposal to go private."

    Two comments on that:

    1. You don't mess with Carl Icahn. He will get the board to listen to him and send the stock soaring or he will bail out while the stock is soaring without doing anything. Its a double edged sword.

    2. Dell considered a leveraged recapitalization and found it inferior to the proposal to go private... for Mike Dell's bank account.

    Another interesting development is that mega private equity firm Blackstone (NYSE:BX), rival computer makers Hewlett-Packard (NYSE:HPQ) and Lenovo Group Ltd. (992), are also expressing interest in the Dell deal.

    Previously, my view was that I don't care if the deal doesn't go through, because I am willing to hold the stock and wait for unhappy shareholders to squeeze cash out of Dell. I also was not expecting much of an improvement on the offer price, if any at all. But I held on and all these interesting things happened.

    The barbarians are at the gate. Shareholders went home and fetched their pitch forks. The Great Icahn has awaken, and shaken Dell's world. Something's gotta give. The combined opposition forces are now greater than Mike Dell's, something which wasn't true only a month ago. If you were brave enough to hold on to your shares, and if you are brave enough to hold on a little more, something cash may be coming your way. But hold on at your own risk. I'm holding.

    Disclosure: I am long DELL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: DELL
    Mar 08 5:16 AM | Link | Comment!
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