The big picture is getting interesting, to say the least. Today is Fed day, so everyone will be spending the morning trying to guess where all the periods and commas go in the report and make a determination of the direction of interest rates. Russia is on the verge of an economic crisis and we will be hearing from Mr. Putin soon on just how he plans to fix the mess. The mess, of course, is caused by falling oil prices, which are still falling. Pundits are pondering whether the extra cash in consumers' pockets as a result of lower oil prices is enough to offset the potential damage to credit markets and the job losses from shale rig shutdowns. In the midst of all this, we are still less than 5% off all-time highs in the stock market.
It feels as if I have written about nothing but energy and small banks for the past two weeks. That makes a certain amount of sense, as oil is causing all the problems and energy-related stocks have been hammered, while small banks have been a perfect hiding place with huge profit potential. As central as those two sectors are to value investors, other things going are that we should consider as opportunities outside of those sectors.
I am paying very close attention to what corporate insiders and the smart institutional investors are doing. I am spending more time than usual with SEC filings looking for the cheap stocks these better-informed classes of buyers are buying. One of the best screens I use is insider buying by the CEO and CFO of a company. The screen produces an enormous amount of energy stocks (which I will write about tomorrow), but there are also interesting non-energy-related stocks seeing big dollar buying by the top two executives.
Pico Holdings (PICO) is an interesting collection of assets that has attracted the eye of value investors for years. It has a division that develops sources of water and provides water storage in the southwestern U.S. It also has a homebuilding and real estate development operation that currently owns and controls 5,964 lots, consisting of 4,940 in California and Washington, and 1,024 in North Carolina, South Carolina and Tennessee. The agribusiness division makes canola oil and canola meal products. The stock has been weak this year and CEO John Hart has apparently decided it's too cheap, as he made open market purchase of more than 49,000 shares last week. The stock is currently trading down near tangible book value, which many believe to be understated. The stock is worth holding for long-term gains as the value of the assets is eventually recognized by the market.
Titan International (TWI) first caught my eye because smart investors like Michael Price and FPA Capital were buying the stock as the price fell earlier this year. The company sells wheels, tires and undercarriages for off-road machinery and vehicles used in the agribusiness, construction, earth-moving and consumer markets. The company's products are used in everything from golf carts to cranes and dump trucks. Business has been less than great as the mining sector and agriculture sector shave been weak this year. CEO Maurice Taylor apparently thinks that the value of the business is far greater than the stock price, as he opened up his checkbook last week and purchased 81,992 shares of the company. Director Mark Rachesky apparently likes the future of the company a lot as he just picked up an additional 505,000 shares of Titan in the open market. The stock is trading at 92% of book value so it is reaching bargain levels from a long-term asset-based perspective.
Kratos Defense & Security (KTOS) fell short of Wall Street expectation last quarter and the stock price has fallen about 40%. Although earnings have slowed because of delayed contracts, investor might be overlooking the fact that Kratos has projects in key areas of defense like drones, cyber-warfare, missile defense and critical infrastructure protection that will not be hurt by cuts in defense spending. If anything, these programs may see increased spending in the years ahead. CEO Eric DeMarco and CFO Deanna Lund apparently think so, as they purchased 21,575 and 3,000 shares, respectively, of the company they manage. The stock trades at 1.1x book value, which is cheap given the potential of this company to win contracts in critical areas of the U.S. defense program.
I am not smart enough to know what Mr. Putin may do in Eastern Europe or when the Saudis will decide they are done knocking the oil markets. I am, however, smart enough to recognize that the CEO and CFO know more about the companies they run that anyone else does, and when they are buying stock in the open market, it makes sense to take a deeper look at their stock.