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 buy for only one: They think the price is going 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 and 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)
Ebix (NAS: EBIX)
Neil Eckert, director
GeoEye (NAS: GEOY)
Stephen Feinberg, 10% owner
Republic Services (NYS: RSG)
Cascade Investment, 10% owner
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.
You can bank on it
Like those services providing mortgage quotes from a handful of lenders, Ebix offers a cloud-based milieu for life insurance brokers to receive and track policy quotes throughout the entire underwriting process. Electronically finding, quoting, paying, and tracking a policy all within the confines of Ebix's exchange is proving attractive to insurance companies such as MetLife (NYS: MET) and is lucrative to the software specialist.
Revenues last quarter jumped 28% as the exchange business jumped 40% year over year. It now accounts for more than three quarters of Ebix's revenues. After a yearlong walk down to the cellar following concerns over its accounting propriety and its growth-by-acquisition strategy, investors are once again focusing on its business.
With only nominal competition from two privately held rivals, it's Ebix's vast expertise in insurance regulation that prevents other rivals from grabbing some salesforce.com (NYS: CRM) cloud space and developing an exchange of their own. And with less than 10% of the industry having switched to a paperless system, Ebix has a large runway in front of it.
That helps explain why 97% of the more than 1,500 CAPS members rating the insurance-software specialist think it will beat the market indexes. Let us know in the comments section below or on the Ebix CAPS page whether you think the climb to the attic is sustained, and then add the exchange operator to your watchlist to see how it plays out.
All in the family
The government is a fickle friend, and the prospects of spending cuts have weighed heavily on imaging-satellite operators GeoEye and DigitalGlobe (NYS: DGI) . The U.S. government represented two-thirds of GeoEye's revenues last year, so any reduction in spending is a cause for concern. While it can fall back on foreign government investments, which account for a quarter of its business (commercial interests are less than 10%), Russia just launched France's Pleiades-1 high-resolution imaging spacecraft with capabilities on par with GeoEye and DigitalGlobe.
GeoEye, however, brings more than just detailed imagery to the market, also offering advanced processing capabilities that benefit from owning three airplanes also equipped with advanced imaging technology. DigitalGlobe, for example, doesn't own any such aircraft.
Some 98% of the CAPS All-Stars weighing in on the spy in the sky undoubtedly think that sort of differentiation is a key advantage that will propel it ahead of the broad market averages. Add GeoEye to your watchlist, and let us know in the comments section below whether you think other investors will join Cerebus Capital Management's Stephen Feinberg in filling out their portfolio.
I would stay away from garbage collectors. municipalities are in trouble everywhere as are state gvts. the garbage man is going to feel the squeeze.
While there has been nearly $1 billion worth of municipal bond defaults this year, that's far below the $3.4 billion in defaults recorded in 2010 and the $8.5 billion in 2009. Of course, Jefferson County, Ala., represents a large percentage of those previous defaults (it's been in that condition since 2008), and it filed for Chapter 9 bankruptcy protection this year. But as the saying goes, you still have to take out the trash, and CAPS All-Star spiritof78 sees Republic's public agreements as a source of strength: "Strong Play in Waste Management sector with long term contracts on municipal collection primarily in the south. Has a very solid dividend and should outpace the broader market for the next several years."
Which side do you come down on? Add the waste hauler to the Fool's free portfolio tracker, and tell us in the comments section below or on the Republic Services CAPS page whether you think this stock should be carted off to the landfill.
On the inside track
Government involvement -- whether through contracts or regulatory moat-building -- informs each of these investments. Discover two more small-cap stocks with solid state contracts that have the potential to deliver multibagger returns. This Motley Fool special report is free for the asking, but it's available for only a limited time, so ask for your copy today!
At the time thisarticle was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Ebix and Waste Management.Motley Fool newsletter serviceshave recommended buying shares of GeoEye, Ebix, Republic Services, salesforce.com, and Waste Management, creating a write covered strangle position in Waste Management, and shorting Salesforce.com. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.