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5 stocks smart insiders are buying
There's been lots of selling this month, but a few CEOs are going against the grain and snapping up their companies' shares. Here's why you should do the same.
By Jim Jubak
It increasingly looks like investors have decided that Santa came early in 2005. Instead of holding on for the stock market's traditional Santa Claus rally in the waning days of the year, investors have been selling steadily since early December. The Nasdaq Composite ($COMPX), which hit its high for 2005 on Dec. 2, is down 2% since then as of Dec. 20. The Dow Jones Industrial Average ($INDU), which looked like it might finally move above March's high at 10,940, is down 1% from its December high of 10,913.
That's why it could be highly profitable right now to note which stocks are bucking the trend and focus on a handful of stocks knowledgeable insiders aren't selling. In fact, they're buying. The folks -- directors and officers -- who know these companies best are voting to buy with their own money at a time when selling is in vogue across the stock market. Now that's a vote of confidence to pay attention to, if you're looking for stocks to stuff into your portfolio as we head into 2006.
It's not especially hard to figure out why investors in general are selling. Anyone who has profits -- especially the big institutional and hedge-fund managers who get graded by clients every quarter and, most importantly, at year end -- is selling to lock in those profits. If you're ahead of the index, there's no point in risking that record with just a few days to go in the year.
What are the insiders doing?
The only folks who have been selling faster than institutions with profits to book have been company insiders. Look at some of these insider sales records in recent weeks. At Corning (GLW, news, msgs), where shares are up 71% in 2005, 19 insiders including the chairman, the CEO, CFO and COO sold 861,303 shares in just one week. Prices ranged from a low of $19.59 to a high of $20.98. The stock peaked at $21.39 on Dec. 12 and is down 6% from that high as of Dec. 19.
And Corning isn't by any means unusual. Valero Energy (VLO, news, msgs), a stock up 131% in 2005, saw heavy selling by its CEO in late October. Insiders at Advanced Micro Devices (AMD, news, msgs), a stock up 28% in 2005, have been selling steadily in November and early December. Same at Yahoo! (YHOO, news, msgs), a stock up only 9% in 2005, but up 28% from its low on Sept. 21, 2005.
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When everybody's selling, I don't think insider sales tell you a whole lot about the prospects of individual companies. How can you say that the selling at Yahoo! means anything about Yahoo!, for example, when selling is everywhere?
Which is what makes insider buying at a time like this so meaningful. Contrarian buying requires conviction and solid information about future trends. It's certainly gets my attention as I try to plot a course for what is likely to be a perplexing 2006.
Stocks that got my attention
In my regular Wednesday morning appearance on CNBC's "Morning Call," I flagged these three stocks with strong insider buying in recent weeks:
Chiquita Brands (CQB, news, msgs). In November, two directors purchased 8,300 shares of Chiquita Brands. That's not a lot of shares, but with no insider selling, I thought that was an important vote of confidence in the company's new strategy. (You can see a list of the most recent insider buys and sells on our Web site in the stock research section.) And then another shoe dropped, loudly, on Dec. 19: Chiquita Brands CEO Fernando Aguirre bought 15,000 shares of stock. Chiquita Brands faces uncertainty in the banana market in the second half of 2006 thanks to recent hikes in tariffs set by the European Union. But bananas are becoming a smaller part of the company's business as its purchase of Fresh Express, a provider of bagged prepared salads and cut fruit, kicks in. In 2006, the Fresh Express operation should account for more than 40% of the company's earnings before interest, taxes, depreciation and amortization, according to BB&T Capital Markets. The growth in that part of Chiquita Brands' business will reduce the volatility of the company's earnings, which will, gradually, lead investors to pay a higher multiple for more dependable results. Our StockScouter rates the shares a 5 out of a possible 10.
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