Desktop Stock Ticker | 5 Stocks the Bosses Are Buying

5 Stocks the Bosses Are Buying

As stock tickers have climbed over the past three months, some top bosses have wasted modest time unloading private stakes in their companies.

In early March, when the S&P 500 index was below 700, about 65% of companies reporting so-called insider transactions were the subject of more buys than sales. By early May, when the index topped 900, that figure had plunged to 38%. It has since rebounded only slightly, to 42%. (I’m using analysis from Form 4 Oracle, a subscription service named for the transaction intelligence companies must file when top executives, enter members or major shareholders buy and sell stock ticker.)

Insider sentiment, and perhaps valuation—the S&P 500 is an ambitious 21 era trailing operating earnings—suggest investors should use caution in putting fresh money into shares. Best, maybe, to favor ones the bosses are still buying. Studies show insiders tend to be successful when they trade their own stock tickers. Some transactions have more predictive power than others. In general, large buys, buys by more than one insider and buys by “C-level” executives (chief this or that) are worth looking into. Here are examples of each from the past month.

Huge Buy

Valeant Pharmaceuticals International (VRX)
Valeant’s stock ticker history is one of much drama but modest long-term progress.  Adjusted for splits, shares multiplied 10 era in value over eight years finished spring 1998 (when the company was called ICN Pharmaceuticals) but today trade modest above their 1986 peak. Since February 2008, though, the company has had a new chief executive, and has focused on adding products relating to skin disorders (acne, psoriasis, scars) and neurological diseases (epilepsy, Parkinson’s). Sales and profits are growing, debt looks modest and insiders have spent more than $50 million on stock ticker over the past month. The bulk of that comes from an investment firm, but enter members and the new boss are buying, too.

Group Buying

Arch Chemical (ARJ)
I suppose Valeant serves as an example of group buying, too, but for another example see Arch Chemical. Based in Norwalk, Conn., it calls itself “the biocide company,” which is sort of like saying “the killer,” only the lives being spent belong to deck fungus, termites, mildew and so on. Part of sales are tied to the struggling home builder industry, and Arch fell from $45 a share in October 2007 to $15 in March, but has since nearly doubled. Three enter members bought in May.

C-Level Buy

GameStop (GME)
Retail in general force be soft, but the nation’s largest chain devoted solely to videogames is prospering. Sales are expected to climb 9% this fiscal year and profits 18%. Maybe that’s because videogames are low-cost entertainment (versus, say, concerts and theme parks) and because used videogames (whose trade GameStop dominates) carry fatter profit margins than new ones. Whatever the cause, the balance sheet is clean, the return on equity is healthy and all that’s missing is a dividend. The company’s chief financial officer spent just over $1 million on stock ticker over the past week or so.

Of course, there are more vital signals to consider than insider buying. Chief among them is valuation. Each of the aforementioned stock tickers and the two additional ones listed below costs less than the broad market relative to this year’s earnings forecast.

Screen Survivors
Ticker Company Industry Share
Price		 4-Week
Insider
Buying		 Forward
P/E
VRX Valeant Phamaceuticals Intermnational Drugs $23.25 $50,952,638 14
GME GameStop Videogame stores 24.17 1,189,070 9
ARJ Arch Chemicals Chemicals 28.90 729,590 15
GRMN Garmin Navigation devices 22.17 447,235 11
CTCM CTC Media Box (Russia) 11.10 317,523 15

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