After I wrote Monday's column on overpriced buybacks, a good friend passed along a recent Bloomberg article by Lu Wang. The article discussed companies which were buying back stock at the same time insiders were selling stock.
This strikes me near malfeasance on the part of these boards. How can you vote to buy back shares with shareholder money while simultaneously selling your personal shares? This is the ultimate in bad behavior. Buybacks have been in vogue the past couple of years as a way to pump earnings per shares. Apparently, this helps drive stock prices up so insiders can sell stock at attractive prices.
It made me wonder if I could find some companies where executives were buying back stock at attractive valuations, and also buying stock with their own cash to take advantage of discounted prices. I would much rather invest my money in situations where my interests were aligned with managements in such a manner.
This morning I screened for these" good guy" stocks and found a few worth further attention. I was not surprised to once again find that it is the small banks that make up the bulk of the list. Virtually every community bank executive I have talked to this year is well aware of the fact that their stocks are cheap and consolidation is starting to accelerate in the sector.
These banks are dealing with the slow economy and a tidal wave of regulations. The people running the banks know that they have to buy and grow or face the prospect of selling their bank to a competitor. It is a win-win situation for buyers right now. Smaller banks will either find a way to grow and compete against larger banks which means higher profits, dividends and stock prices, or they will sell to a buyer at prices well above the current level.
- Banks where executives are spending their own cash as well as shareholder to buy shares at attractive levels include HomeTrust Bancshares (HTBI), First Connecticut Bancorp (FBNK), ESSA Bancorp (ESSA) , Northeast Community Bancorp (NECB) and HopFed Bancorp (HFBC). There also are more than a dozen microcap banks that are seeing insider buying and that are conducting share buybacks at book value or less.
Silver Bay Realty (SBY) was a popular issue when the stock first came public .For a brief period, the idea of investing in a REIT that was buying single family rental homes at distressed prices was pretty popular. It soon became evident, however, that there were many difficulties in managing and maintaining a vast portfolio of single family homes. That made the company a good deal less exciting to many investors.
Silver Bay currently owns a portfolio of 5,987 single-family properties and the people running the show think the stock is cheap at this level. The stock is trading right around book value and at a 25% discount from management's estimate of per share of $20.95. Several executives have been buying and the company has reduced its share count by more than 2% over the past year.
Many investors have expressed concerns about higher interest rates and mortgage REITs. But that doesn't t seem to concern executives at Invesco Mortgage Capital (IVR). I have owned this M-REIT for some time and have no intention of selling it any time soon. The shares are trading at 85% of book value and currently yield 11.9%.
Several executives have been buying stock in the open market recently and over the past year Invesco has reduced the shares count by about 30 million shares. I would view the recent weakness as a buying opportunity in this high yielding cheap stock.
Unfortunately, the list of companies where executives are spending tier cash in the same manner as shareholders is pretty short right now. So far this year, about 750 companies have authorized new stock buyback programs and more than $300 billion has been spent repurchasing shares.
I would have hoped that there would have been a more significant portion of these companies also seeing insider buying. The list, however, is shockingly short. A quick check of the screener shows that the vast majority of companies that have reduced their share count this year have also seen insiders selling shares.
Call me crazy, but I am more comfortable with investing executives who are as excited to buy stock with their own money as they are to use shareholders' money.