Insiders Are Your Secret Santa

 | Dec 23, 2011 | 2:00 PM EST  | Comments
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After kicking off the holiday season by getting up at 2 a.m. to stand in line at Wal-Mart (WMT), fighting hordes of hipsters at the Apple (AAPL) Store and waiting in vain for a big-screen TV to arrive in the mail from Best Buy (BBY), we are finally down to just one full shopping day before Santa's big night.

This week I have been building a Christmas list of cheap stocks, and today I want to look at the stocks corporate executives and large investors have been giving themselves this holiday season. Insider buying is always important, but at a time when people are distracted by gift-giving, holiday parties and packing for Christmas in the Caribbean, knowing that an executive or big stakeholder is buying up shares indicates that they must have a strong conviction that better days are ahead for the company and its stock price.

When I look at my list of insider buying for the past month, I see some familiar names. Billionaire investor Wilbur Ross made headlines by buying a huge block of Assured Guaranty (AGO), adding $27 million worth of stock in the municipal bond and infrastructure finance bond insurer. Ross has been involved in this company since bond insurers flirted with disaster in 2008, and he has continued to increase his stake. Other officers and directors, including the CEO and chairman, have been buyers in recent weeks, as well. Although the future of the bond insurance business is a little shaky at one-half of tangible book value, Ross' large position makes this stock worth consideration.

Distressed bank investor Gerald Ford (not the 38th president) has been using his cash rich investment vehicle Hilltop Holdings (HTH) to increase a stake in Southwest Securities (SWS). Although the stock has moved up since I first suggested it and bought a few shares, I would put it on my shopping list. With the cash injection to fix the bank's balance sheet in the rearview, the brokerage and investment side of the business should drive profits higher next year. Ford added to his stake in the financial services company at $5.35 per share, and I would be willing to buy more if it falls back to that level. The shares trade at 70% of tangible book value, so if you don't already own stock, it's worth looking for a shallow pullback to start accumulating the shares.

I have to list at least one bank, since that is much of my focus as I prepare for the New Year. Cathay General Bancorp (CATY) has seen steady buying of its shares this year, and this has continued into the holiday season. The stock trades just below tangible book value at the current price of about $15 and is one of the more interesting banks on my list. The bank has offices throughout the U.S., as well as representative offices in Shanghai and Taipei. It has substantial investments in affordable housing through wholly owned limited partnerships in addition to its core banking business. Cathay has deep ties to the Chinese communities in the markets it serves, and this should be a major plus as business between the U.S and China continues to grow over the next decade. The balance sheet is solid with an equity-to-assets ratio of 12, and nonperforming assets have been steadily decreasing. As a percent of total assets, NPA's are now below 3%. In a market decline that pushes the stock to larger discount to tangible book value, I would start buying this intriguing bank.

Now I'm off to round up enough Christmas Spirit for the holiday weekend here at Chez Melvin. I hope you all have a wonderful holiday, and thanks for reading Real Money!

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