Famed money manager Peter Lynch told us executives can sell their stock for any reason, but typically buy only for one: They think the price is going to go up!
Today, I've highlighted two insiders who've recently made big purchases of their own company's stock. These aren't option grants but rather are insiders putting their own money on the line, buying shares at market prices just like you and me.
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)
Opko Health (NYS: OPK)
Phillip Frost, chairman & CEO
Universal Display (NAS: PANL)
Discovery Capital Management, 10% owner
Source: FinViz.com. *Indirect holding.
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 frosty purchase
Although it's acquiring important technologies in the process, specialty pharmaceutical Opko Health is also pursuing a risky growth by acquisition strategy. It's purchased two companies so far this year and made an investment in a third, equaling the number of acquisitions it made last year. The steady stream of new businesses gives it growth potential but increases the likelihood of a breakdown.
Its shares, however, have risen 35% over the past year, though they're flat so far in 2012, as it's brought on board rights to a drug delivery platform, two biomarkers, and new pharmaceutical and diagnostic products. Chairman Frost obviously believes the company's still undervalued, since entities with which he's affiliated have bought a total of $6.9 million in 2012 to go with the large purchases he made last year.
The company, like many medical research companies, doesn't have the most attractive financial fundamentals as they wait to find the next blockbuster drug. However, with the constant bullish buying by Dr. Frost and the positive partnerships and acquisitions OPK has been making recently, I think OPK could have upside, but doesn't meet a Foolish buy-and-hold approach.
Frost is familiar with potential blockbuster drugs, as he's also chairman of Teva Pharmaceuticals. You can add Opko to your watchlist to see if growth by acquisition will pay off then let us know on the Opko Health CAPS page if it has more than just a generic opportunity to win.
For the first time since 2004, TV shipments fell last year, dropping 0.3% to 247.7 million units, according to NPD DisplaySearch. While LCD TVs were up 7% in 2011, it wasn't nearly enough to offset the 34% plunge in CRT models and a 7% drop in plasmas. Long term, though, NPD expects global sales of LCDs to decline 8% by 2015.
Taking its place will be OLED sets, which the market researchers are looking to quadruple their market share to 16% by then. This is good news for Universal Display, the leading maker of OLED screens, which recently inked a long-term deal with Samsung.
What it really points to is a major upheaval in TV markets. Samsung is completely realigning its business. It devastated RealD (NYS: RLD) in November when Samsung announced it was exiting the 3-D TV market (interestingly, 3-D sets had one of their strongest quarters in the fourth quarter), and then Sony (NYS: SNE) said it was backing out of the joint venture it had with Samsung to produce LCD sets. Now Samsung says it wants out of the LCD business, too, and is looking to spin off its unit as a separate company.
In addition to Samsung, Universal also gave hints that its contract with LG Display will become a longer-term one than is presently realized. The future is OLED screens, and Universal Display will play a leading role in their development.
CAPS member gatortaxpro120 sees OLEDs being all the rage soon enough, which likely comports with the view of the broader CAPS community where 93% of the 1,135 members rating the next-gen screen specialist to outperform the market indexes. While we did hear similar sentiments with 3-D TVs when they hit the market, OLED is more than just a gimmick.
Add Universal Display to the Fool's free portfolio tracker so you'll be able to receive news as it happens and be warned if it does end up playing out like 3-D TV.
On the inside track
These two companies still have big hurdles before them. Discover two other small cap stocks the Motley Fool found with solid state contracts that have the potential to deliver multi-bagger returns. This 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 contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Universal Display and Teva Pharmaceutical. 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.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.