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 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)
Paramount Gold & Silver (ASE: PZG)
FCMI Financial, 10% owner
RAIT Financial Trust (NYS: RAS)
Rima Management, 10% owner
Source: Company filings.
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.
Higher and higher?
Between the higher grades of gold it's finding at its Don Ese and La Union projects, Paramount Gold & Silver is sitting on a gold mine of opportunity. The gold and silver miner has recorded higher assay results at its San Miguel mine and recently said it had found the highest silver grades yet at its San Antonio silver deposit.
Yet the stock is still off some 30% over the past year, which might be why FCMI finds the stock to be such a bargain. The hedge fund has established a near 16% stake in the gold and silver miner. CAPS member Venerability suggested earlier this year that its manager, Albert Friedberg, was setting up the miner for a possible takeover, possibly by Seabridge Gold (NYS: SA) : "The CEO of Seabridge, a longtime Paramount board member and close associate of Mr. Friedberg over the years -- just left PZG's board, which often happens prior to a takeover bid."
Venerability sees parallels with Arizona Star, which was purchased by Barrick Gold (NYS: ABX) in 2007 and in which FCMI played a role. While such a scenario can always play out, I own shares of Paramount because of the potential its mines possess. You can add Paramount to your watchlist to see whether an offer is ultimately made, then let us know on the Paramount Gold & Silver CAPS page if, like me, you just see this as a golden opportunity.
A commercial success
Apartment commercial mortgages was the best-performing segment in 2011, with returns greater than 10% and just nudging out the retail space. Overall, though, commercial mortgages returned 9.9% last year, and with rates still low, the CMBS market looks like it will remain competitive.
That's good news for real estate investment trusts like RAIT Financial Trust and Gramercy Capital that focus on the commercial mortgage segment. Almost two-thirds of RAIT's commercial property portfolio is in multifamily units, and while occupancy rates are on the rise, there's risk that we'll see more defaults as mortgages made during the CRE boom years mature and financing won't be available after property values fell 40% from their peak. That was part of the reason General Growth Properties (NYS: GGP) sought bankruptcy protection in 2009.
Yet 91% of the CAPS All-Stars rating RAIT think it will beat the market indexes, perhaps joining Rima Management in seeing the stock as undervalued yet. With it trading at a minuscule 0.2 time its book value and offering up a decent dividend yielding 6.6%, this might just be the time to add RAIT Financial Trust to the Fool's free portfolio tracker to see if this REIT rises above the rest.
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 multibagger returns. This special report is free for the asking, but it's available only for a limited time, so ask for your copy today
At the time thisarticle was published Fool contributorRich Dupreyowns shares of Paramount Gold and Silver, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Gramercy Capital.Motley Fool newsletter serviceshave recommended buying puts on Seabridge Gold. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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