After penning yesterday's column on Richard Thaler's behavioral-investing theories, I decided to look for companies that have both insider buying and active buyback plans but haven't seen a precipitous decline in the past year. Here are three that I found.
Not all value stocks are falling knives, and those that have started to see improvements might actually see some price gains. So, I looked for potential bargains where management is showing its love with both corporate cash and its own money.
Not surprisingly, small banks were well-represented on my list. Banking insiders are well aware of what's going on in their industry, and they're buying their own shares to take advantage of the sector's "trade of the decade."
Almost 70% of bankers surveyed earlier this year expect to be involved in M&A discussions in 2016. Obviously, those who are considering selling their firms will want to do so at a premium to their stocks' recent prices. Buyers are also aware that a well-executed acquisition that's accretive to earnings and book value will drive a stock's price higher.
Here are three bank stocks that my screen recommends checking out:
Investors Bancorp (ISBC)
This small bank finished its second-step conversion last year, and CEO Kevin Cummings has made it clear that he's open to making acquisitions in the Northeast market that the bank operates in.
Activist investor Clifton Robbins of Blue Harbour last year called Investors Bancorp one of the best risk/reward opportunities he's even seen, and I tend to agree with his long-term outlook for this stock. I think ISBC will be able to grow assets and earnings via smart acquisitions, and there's always the possibility that a larger bank will decide that it needs to own Investors Bancorp's 142 branches and $2.6 billion in assets.
Three directors have been buying stock recently, while the bank also bought back 31.6 million shares of its common stock for approximately $382.9 million during 2015. ISBC also has 21 million shares left on its current buyback authorization.
Apollo Global Management (APO)
Shares of the private-equity firm have rebounded off of their recent lows, but the stock is still down 26% over the past year.
Nonetheless, I'm a big fan of Apollo's long-term outlook. Investors willing to take a private-equity-like five- to seven-year approach to investing should be well rewarded.
The firm has seen reduced earnings, but should find good ways to put its $22 billion cash stockpile to work as asset prices decline. For instance, Apollo is starting to put money into the energy sector, and should reap huge profits when that segment eventually recovers.
The firm also pays out most of its cash flow each quarter, and while the exact dividend is tough to predict, I think the stock will continue to pay an above-average amount to shareholders.
Additionally, Apollo recently announced a $250 million buyback plan, with CEO Leon Black calling APO's depressed stock price "an absurdity -- but an opportunity, clearly, in terms of repurchasing shares." Director Robert Kraft has also been buying shares recently.
In sum, I believe smart investors will use any price weakness in APO as an opportunity to accumulate a long-term position in the stock.
FBR & Co. (FBRC)
This institutional brokerage-and-investment firm had a rough year in 2015 due in a large part to sloppy market conditions, and CEO Richard Hendrix has predicted the environment will remain challenging in the near term.
But insiders apparently have a much rosier long-term outlook, as several of them (including Hendrix) have been buying FBR shares recently. The firm also repurchased 1.9 million shares in 2015 at a $23.19 average price, for a total of $45.2 million in buybacks.
Additionally, FBR's board recently increased the company's repurchase authorization to 1 million shares, so we should see continued buyback activity in 2016. The stock is trading at about two-thirds of book value, and the balance sheet is strong (with over $70 million of cash available).
Add it all up and it's clear that insiders are big fans of the stock. Long-term investors might want to consider joining in their enthusiasm.
The Bottom Line
When a company's officers and directors are using both corporate and personal cash to buy shares of the firm that they manage, that's typically a good sign. It's usually a good idea when you see that happening with a stock to take a deeper look at the firm and consider putting your money next to the insiders' cash.