A Closer Look Behind 3 Significant Insider Buys

Includes: M, MASI, VHI
by: Simon Monger

Valhi Inc. (NYSE:VHI), Masimo Corporation (NASDAQ:MASI) and Video Display Corporation (NASDAQ:VIDE) are three stocks that recently saw significant insider buying. In this article, we’ll take a closer look at these three insider buys and the possible motivations behind them.

Valhi CEO Makes Big Bet on TiO2 Market

Valhi Inc. (VHI) is a holding company that owns several subsidiaries in chemicals, component products and waste management that has risen more than 160% since the beginning of the year. But, on October 31, 2011, Chairman of the Board Harold Simmons purchased 5,000 shares at $58.25 per share in a transaction worth approximately $291,250 despite this enormous rise.

Many investors believe that TiO2 may be the driving force behind both its higher share price and the insider’s interest. In its 10-Q filing with the SEC, the company indicated that it believes market demand for the chemical will remain robust and inventories will remain low for several years. In the end, this could mean the 261% increase in operating income from this segment could be just the beginning.

Masimo CEO Makes a Contrarian Bet

Masimo Corporation (MASI) is a medical technology company that develops, manufactures and markets non-invasive patient monitoring products. Despite its stock price plummeting more than 30% so far this year, Chairman and CEO Joe Kiani purchased some $1.3 million worth of stock on October 28, 2011. The move could signal a bet on a turnaround.

After reporting lackluster earnings last quarter, the company trades with a price-earnings ratio of around 18x, which is lower than the 22.34x industry average. The real highlight for valuation, however, is its 0.85 price-earnings to growth ratio, which suggests that it may be significantly undervalued. Add to that one-time setbacks – like reduced OEM sales – and this stock could see a turnaround.

Video Display CEO Joins Company in Buying

Video Display Corporation (VIDE) is a provider and manufacturer of video products, components and systems for data display and presentation. Despite a pretty uneventful year so far, CEO Ronald Ordway reported purchasing 5,972 shares at $4.02 a piece on October 27, 2011. The move comes after the company announced strong financial results for the first half of fiscal 2012.

Interestingly, this insider purchase comes alongside an existing company buyback program that has utilized the downturn to purchase 34,463 shares at an average price of $3.02 a piece. Perhaps even more telling is the fact that insiders now own some 37.23% of the company – a fairly sizable block by many measures. Combined, this purchasing should be a very bullish signal for investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.