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 if they think the stock has the same prospects the insiders do.
Market Value of Transactions
CAPS Rating(out of 5)
Air Transport Services Group (NAS: ATSG)
Willem Mesdag, 10% owner
Ecolab (NYS: ECL)
Bill Gates, 10% owner
Lions Gate Entertainment (NYS: LGF)
Mark Rachesky, director
Source: 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, just the inside track on companies you might want to check out further.
The stock of air cargo and services provider Air Transport Services Group hasn't reflected the better operational performance it recorded. Despite revenue jumping more than 20% in its most recent quarter and per-share profits rising almost 27%, shares languish around $5.40 a stub. That could explain why Willem Mesdag, through his Red Mountain Capital Partners investment firm, decided to secure an even larger stake in the business.
Air Transport Services restructured its credit agreements earlier this year, which observers believed would hurt short-term earnings but improve the company's long-term financial position (it apparently has). The company also restructured its agreements with package delivery specialist DHL. It's going to run into some headwinds with one of its main customers changing its business model, but there's the potential of still keeping the business through a circuitous route via DHL. There may be charges accruing, though, related to writedowns and layoffs, if it doesn't pan out.
All that has made ATS cheap. At nine times trailing earnings and six times forward estimates, it trades at about half the level of its larger rivals UPS (NYS: UPS) and FedEx (NYS: FDX) . Equally interesting is that when you look at the values compared to its growth prospects, Air Transport Services becomes an even better bet.
I indicated my belief on the Air Transport Services Group CAPS page that it will outperform the market, joining with 281 other community members, or 88% of those rating the cargo services specialist, who think it will beat the Street. Let your voice take wing there now.
Between his Cascade Investment firm and the Bill & Melinda Gates Foundation, Microsoft (NAS: MSFT) chairman Bill Gates is now the largest shareholder of hospital and restaurant cleaning supplies and services provider Ecolab. The big purchase made this week was on top of equally large ones made the week before that brought his total stake to more than 11%.
Gates began buying Ecolab a year ago, but his interest was really piqued after it announced its intention to buy Nalco (NYS: NLC) , a specialty chemicals and consumer products company. That's an interesting twist, since Gates' good friend Warren Buffett sold off his entire stake in Nalco at the end of last year and opted instead to buy up rival Lubrizol. Two of the richest men in the world now control two of the top companies in the same industry. Coincidence?
CAPS member youngblood58 was willing to follow Gates into Ecolab last month when the buying started, but with all but one All-Star thinking it would beat the broad indexes, it becomes an easier decision to make. Head over to the Ecolab CAPS page and tell us whether it's possible to clean up by following other smart investors.
No leap of faith
When we looked at what Mark Rachesky was up to just a couple of weeks ago, we noted that he was making big bets in Leap Wireless (NAS: LEAP) . Now he's revisiting an earlier investment he made in movie studio Lions Gate Entertainment. Back in January, he sunk $5 million into it, which I noted at the time has been a rather regular occurrence for him since he wrested control from one-time mentor Carl Icahn.
The interesting thing here is that Icahn has been buying in too. Throughout the month of August, the corporate raider-turned-activist investor bought $5.2 million worth of stock himself (well, his various partnerships anyway). But yesterday, he abruptly gave up on his takeover bid and sold his stake in the company.
CAPS member streeter123 notes that there's a lot of palace intrigue here, but also cautions on the studio's debt load.
You can add the stock to your watchlist if you want to see if such confidence is warranted. Then add your opinion to the Lions Gate Entertainment CAPS page about where you think Rachesky will make his next move.
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 Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of United Parcel Service and FedEx. Motley Fool newsletter services have recommended buying shares of FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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