Assessing a Spate of Insider Buying

 | Oct 10, 2012 | 11:30 AM EDT  | Comments
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Statistically, insider purchases tend to be bullish signals for a stock -- and that's why we at Insider Monkey track both insider buying and selling. So, without further ado, here are five stocks that insiders were buying in early October.

Best Buy (BBY) board member Matthew Paull bought 6,500 shares of the company on Oct. 2 at an average price of $16.89. The company has been under attack from Amazon (AMZN), with the latter taking advantage of its lower costs as it attempts to move into electronics retail. Sales at Best Buy fell last quarter, and earnings plunged as the company failed to preserve its margins. Founder Richard Schulze is attempting a buyout, and this will likely give investors a premium on any shares they are able to buy before the announcement. However, it is unclear whether Schulze can raise enough private capital -- including risk-averse debt -- in order for the transaction to proceed.

The CFO of specialty-chemicals company HB Fuller (FUL), James Giertz, purchased 3,000 shares on Oct. 3 at an average price of $30.02. Unlike at Best Buy, HB Fuller's stock price has been doing quite well: It has risen 63% over the last year and is now valued at $1.5 billion. Revenue and earnings were up substantially last quarter, compared with a year earlier, yet the stock only trades at 11x trailing earnings. When we evaluated the stock, we considered it cheaper than most of its peer group.

Daniel Yih, who serves as a board member at women's apparel retailer Ann (ANN) -- owner of the Ann Taylor and LOFT brands -- bought 5,400 shares of the stock at an average price of $37.02. Ann trades at trailing and forward price-to-earnings multiples of 20x and 14x, respectively, which is very much in line with its peers. The company grew its revenue -- including same-store sales -- and its margins in its most recent quarter vs. a year earlier, driving an impressive 24% rise in earnings.

Consolidated Graphics (CGX) is a commercial printer serving customers in the U.S. and Canada. Its market capitalization is only about $270 million, but it has traded an average of more than 60,000 shares per day over the last three months, and with a stock price above $26. That represents volume of more than $1.5 million. Consolidated CFO Jon Biro purchased 7,000 shares on Oct. 5 at an average price of $25.91 apiece. The company's share price has fallen 36% over the last year, and Biro apparently believes that momentum has carried it down too far. The stock trades at 23x trailing earnings, but the forward P/E comes to 8x, as Wall Street analysts expect business to pick up.

Edwin Johnson, CFO of Casella Waste Systems (CWST), bought 25,000 shares of his company on Oct. 3 at an average price of $4.33, roughly where the stock is as of this writing. This gave Johnson a total of about 100,000 shares, according to the filing with the SEC. Casella -- another smaller-cap stock that still has more than $1 million in average daily dollar volume -- is a waste management company that collects and disposes of solid waste. Casella is unprofitable, though it is expected to come close to breaking even in the fiscal year ending April 2014. Like Consolidated Graphics, it has sunk over the last year -- by 26% in this case -- and the CFO likely believes that the market has overreacted to the company's business performance.

As for our analysis, despite these votes of confidence, we'd hold off on purchasing most of these names. We'd avoid Best Buy for the moment, as shareholder value depends on either a buyout or a turnaround. However, HB Fuller looks cheap, including when compared to its peers. Ann had looked to us to be fairly priced, but when reviewing comparable companies we resolved that Macy's (M) might be a better value play. Finally, we wouldn't want to bet on Consolidated or Casella turning their businesses around, and so we wouldn't advise imitating those insider purchases, either.

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