Make Big Money: Think Like an Insider

Corporate officers know more about the true worth of their stocks than anybody else. When shares get really cheap they often welcome the chance to scoop up positions at rock bottom prices. Like everybody else, they are not infallible. Nobody can call exact bottoms in advance as short-term market action can get quite irrational. Even so, their decisions to buy on the open market should be taken as optimistic visions of the future prospects for both their companies and their stock prices. Here are just a few examples of large insider buys which preceded nice percentage gains over short periods. Casino operator Wynn Resorts Ltd.'s stock price fell from near $198 to about $90 last fall on bad publicity and poor overall market action. Director Philip Satre didn't waste the opportunity. On Nov. 13, 2018, he purchased over $1 million of stock at $103.01. He was a bit too early to catch the ultimate low, but did quite well when WYNN rallied to north of $150 in late April. From December's nadir to that peak represented a cool 66.6% rise in just four months. Griffon Corp. saw a number of insider buys, including some from its CEO and CFO, from August through December of 2018. All the trades made later in the year were executed near the $12 mark. As with WYNN, GFF managed to go even lower near Christmas, finally bottoming at $9.65. Those insiders weren't wrong on their assessment, however. By April of 2019, GFF had more than doubled off that Christmas Eve low. Make-up manufacturer Coty Inc. ended up being the worst performer in the entire S&P 500 last year. On its way down from a June 2018 peak of $23.55, there were multiple insider buys during August and November. Coty's CEO made a greater than $2 million purchase at $8.69. Once again, insiders were unable to call a bottom. COTY eventually stopped its decline at a sickening $5.91 per share. They're not regretting their buy decisions, though. As of May 17, 2019, COTY was this year's best stock in the S&P 500, trading near $14. That rebound represented a better than 135% gain from last December's low. Clearly, there is lots of money to be made by taking positions in solid companies when their shares fall seriously out-of-favor. The big moves on the three stocks already mentioned make them less attractive than they were late in 2018. What stocks have been seeing insider buying recently which are still at bargain levels? I'm glad you asked. Qurate Retail, Inc. took a header recently. Its CEO, and two directors, including media mogul John Malone, stepped up with large purchase orders after a drop from a 52-week high of $25.03. QRTEA bottomed at $11.17. Just four days later it was quoted as high as $13.69. The stock still appears very cheap, attracting a 5-star buy rating from quantitatively-based, independent research firm Morningstar, Inc. Real estate company Realogy Holdings Corp. saw a million-dollar CEO buy, plus a more modest director purchase this month. Reology's stock price is down more than 68% from its 52-week peak. Upside is huge and it yields more than 4.4% while you wait for a rebound. Morningstar likes the stock, giving it a 4-star, buy rating. Asset management firm Affiliated Managers Group, Inc. has been really beaten up, nearly cut in half since this time last year. The company's CFO responded by buying over $1 million worth of stock on May 10, 2019. AMG merits a 4-star buy from Morningstar. Terex Corp. presents a similar story. Multiple insider buys in April and May, 2018, followed a sharp correction in the share price. Terex's original bottom in late December gave way to a quick 51%, two-and-a half-month snap-back. The latest pullback is giving traders a second chance to buy in cheap. TEX is a Morningstar, 4-star, buy. Sally Beauty Holdings, Inc. has been frustrating insiders, and normal investors as well, over the past couple of years. Fundamentals are at all-time records, yet the shares remain well below any rational, fair-value estimate. Sally's CEO and a director each bought more this month betting on a major rebound. The shares surged from $13.72 to $23.61 from August to November last year, before sinking back to under $16. My 12-month target price range for SBH runs from $30 to $35. Morningstar likes the shares. It's rare to see a major blue chip drop as severely as CVS Health Corp. has done. A five-month, greater than $30 plunge made this stock screamingly cheap. Corporate insiders stocked up on CVS shares in March, at $52.80 to $58.29 per share. We can now buy cheaper than they did. Morningstar assigns CVS their highest, 5-star, buy rating. CEOs and directors typically receive plenty of shares via employee stock options. It takes remarkably low valuations to entice them into buying on the open market. Fight your fear of buying cheap stocks simply because nobody seems to want them at the moment. These kind of stocks tend to bounce back sharply, often without any obvious catalyst other than value.

Make Big Money: Think Like an Insider

Insider buying by corporate officers should be taken as optimistic visions of the future prospects of their companies and their stock prices.

Columnist Conversation

This Weekend on Real Money

Morning Fibocall for 7/10/2020

Fibocall: The INDU and Our LT View

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.