Famed money manager Peter Lynch gave us the inside scoop on how to look at insider transactions. Executives can sell their stock for any reason, he said, but they only buy for one: They think the price is going to go up!
Today, I've highlighted a handful of insiders who have made big purchases of their own company's stock in the past week. These aren't executives getting big chunks of shares from option grants. Rather, they're insiders putting their own money on the line, buying shares at market prices. I then paired that information with insights from the members of Motley Fool CAPS to see whether they think the stock has the same prospects the insiders do.
Market Value of Transactions
CAPS Rating(out of 5)
Cintas (NAS: CTAS)
Scott Farmer, CEO
Leap Wireless (NAS: LEAP)
Mark Rachesky, director
Legg Mason (NYS: LM)
Nelson Peltz, director
Sources: finviz.com, Motley Fool CAPS.
Although following the lead of insiders can be profitable, we still recommend you do further due diligence to determine whether these stocks ought to be sold from your own portfolio -- or would make a good addition! So this isn't a list of stocks to sell or buy, but just the inside track on companies you might want to check out further.
A uniform way of thinking
If we're going to see evidence of a recovering economy, proof of it will pop up in unlikely places. Uniform rental leader Cintas would be one of them.
Restaurants, hotels, hospitals, and a variety of other service industries rely upon the daily uniforms that employees of these businesses wear. In large part, they get them from Cintas, so when the economy is sick, Cintas doesn't rent or lease as many. When healthy, the reverse is true. Its fourth-quarter earnings last month indicated that the economy was getting healthier as sales rose organically 8% from last year.
Not only is the CEO buying shares of his company, but Cintas itself has also been a buyer, spending more than $700 million repurchasing shares. With the repurchase program now completed and the stock plummeting as a result of the frenzy gripping the market after Standard & Poor's downgraded the United States, the CEO apparently thought his shares were just too cheap to pass up.
With 98% of the CAPS All-Star members who've rated Cintas thinking it will outperform the broad market indexes, no doubt they feel the same way about its stock, which has since bounced 15% from the lows it hit during the turmoil. There's no uniformity of opinion on the Cintas CAPS page, however, so head over and tell us whether you think it can continue growing from here.
Keeping an eye on things
Apparently, no matter where you fall on the wireless spectrum, the industry has become this year's solar craze. Every player's stock seems to be popping.
Following the auction of bankrupt Nortel's patent portfolio, anyone with a stake in the game saw its stock soar. InterDigital (NAS: IDCC) put out feelers for selling a passel of its patents, and its stock rocketed higher. Even 4G security specialist VirnetX Holdings (ASE: VHC) got a bounce from its patent holdings. But Google topped all when it agreed to swallowMotorola Mobility (NYS: MMI) in a huge, $12.5 billion buyout.
So there's little wonder why even Leap Wireless is seeing its shares enjoy new attention, and it no doubt helps explain why director Rachesky increased his stake to more than 25% of the company. Earlier this year, Rachesky also made an outsized purchase of Lions Gate Entertainment shares, boosting his position to more than 21% at the time.
The CAPS community is also supportive of Leap Wireless, with 83% of those rating it thinking it will beat the Street, though the two-star rating they've assigned it suggests that they also believe there are better places for your money. Head over to the Leap Wireless CAPS page and tell us whether you think future growth here requires a leap of faith.
A conservative estimate
Bill Miller's incredible 15-year run of market-beating performance is a thing of legend. Unfortunately for Legg Mason, it's a thing of the past, too. Beating the market no longer seems to be the biggest concern; just keeping investors from running away would be an improvement. Assets under management fell to $663 billion, down from $678 billion last quarter, though they were up from $645 billion a year ago.
Legg Mason's CEO acknowledges that Miller's performance at Capital Management has been about the worst of all his peers, but with his focus on large cap U.S.-based companies, investors will do well when they come back into favor. Perhaps Norman Peltz thinks the tide is turning.
A four-star rating and support amongst CAPS All-Stars indicates that they agree that Legg Mason in general will win better performance going forward. You can add the stock to your watchlist if you want to see whether such confidence is warranted. Then add your opinion to the Legg Mason CAPS page on whether you think Bill Miller can regain his mojo.
On the inside track
Following the insiders can be a path to profits, but it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Sign up today for the completely free service, and tell us whether it's worth trading on this inside information.
At the time thisarticle was published The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of InterDigital, Google, and Cintas. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.
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