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Insiders Stay Bullish: Buy the Cyclicals
By Michael Brush
Exclusively for InvestorIdeas.com
August 23, 2007
Insider’s continued to sop up stock this past week – even if they backed off a bit from their hand-over-fist buying as the market showed signs of firming.
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I still take the bullish insider signal as one of many reasons that it’s time to be long, especially cyclical stocks. These are among the ones that have been hit the hardest in the credit crunch panic. So they stand to gain the most as fears ease -- although a big piece of the recovery has already occurred.
I believe fears will continue to ease because the Federal Reserve has signaled it will do what’s necessary to keep credit concerns from festering into a broader panic that shuts down lending – and economic growth.
Plus the backdrop fundamentals are too strong for the credit fears
to morph into a serious economic problem. We have: Lots of global
liquidity, strong global growth, excellent economic growth at home, and
balance sheet strength for both companies and consumers.
Take a look here for a summary to learn more.
Insider sentiment
The number of buyers compared to sellers rose even higher in the past week, according to InsiderScore.com. A measure of the bullishness of insider buys backed off slightly, but remained firmly in positive territory.
“Overall, insiders have shown a steady hand as the market gyrations have continued,” says InsiderScore.com.
What to buy in this environment
Given the backdrop – the prospects for continued economic growth and Fed rate cutting in September and October – here’s where to focus.
- I’d be looking closely at insider buy names in cyclical sectors like basic materials, energy, retail, technology and manufacturing.
- Stocks with high dividends will do well in a rate cutting environment.
- Select financials also look great. The indiscriminate selling there is astonishing.
- I think it’s still too early to get into homebuilders, though we continue to see interesting insider buying in a few names there. I’ll wait until we see broader insider buying at more names in the group.
Here’s a closer look at what I consider to be some of the stocks with the most bullish buy signals.
Financials
Insiders at American Financial Group (AFG), an insurer, have purchased more than $5.1 million worth of stock recently. And the company just announced a buyback, after a sharp retreat in the stock. Insider buying plus a new buyback – that’s often a great combo.
CIT Group (CIT) has fallen over $20 to trade at $37 recently. Insiders at this consumer and commercial finance company see this as a buying opportunity. They have purchased $1 million worth recently – albeit at prices a few points lower than what we see today.
Insiders recently picked up $325,000 worth of stock at the small reinsurance company Scottish Re Group (SCT).
Energy limited partnerships
Besides being in a sector with bullish trends, these three energy partnerships pay huge dividends. That means their stocks should go up in a rate cutting environment, all other things being equal.
Dorchester Minerals (DMLP), which develops oil and natural gas fields, has seen a healthy dollop of insider buying recently. Insiders recently purchased $588,000 worth of the stock. This limited partnership carries a dividend yield of 9.6%.
Insiders at Duncan Energy Partners (DEP), a natural gas limited partnership, recently purchased $1.7 million worth of the partnership units. They pay a 7% dividend yield.
The chief executive Cheniere Energy Partners (CQP) was buying again this week. In the past six months, he has purchased $8.6 million worth of stock, according to InsiderScore.com. The partnership pays a 10% yield.
Industrial and basic materials
Coleman Cable (CCIX), which makes industrial and communications wire and cable, has been more than sliced in half since it hit $30 following a March initial public offering. Between $11 and $12 recently, a director has purchased $1.4 million worth of stock.
Huntsman (HUN) sells chemicals, plastics, pigments and other basic materials used in industry. Insiders recently purchased $15 million worth of this stock.
Technology
Synchronoss Technologies (SNCR) provides transaction management software. A director just bought $1.5 million worth of stock at about $30, but the stock has already advanced a lot. Pullbacks, anyone?
Retail
Tix (TIXC)
insiders have purchased $882,000 worth of stock in the past month. They
have continued buying even as the stock goes up. The company sells
tickets to shows and gets reservations for discounted dinners for
tourists in Las Vegas. The stock is up 40% since I wrote about it in
January.
The bottom line : It’s a lot easier to buy this week as – unfortunately -- too many people have come over to our bullish take on the markets too fast. I’d like to see some more weakness to get better deals, and I won’t be surprised to see it.
Disclaimer
At the time of publication, Michael Brush was long Scottish Re Group. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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