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Insiders Still Bullish: Stocking Up On Three Small Retailers
By Michael Brush
Exclusively for InvestorIdeas.com
September 06, 2007
Insiders are stuck in buy mode. Though they’ve eased off from their hyperactive purchasing during the worst weeks of August – when we, too, were telling you to get long as much as possible – insiders are still notably bullish.
Buyers outnumbered sellers for the seventh week in a row during past week as of Wednesday, according to InsiderScore.com. Buying remains broad-based across many sectors, but two sectors stood out.
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Not surprisingly, they’re the two sectors that have been hit the worst on fears that a credit crunch will injure financial institutions and take down the economy – the financial services sector and basic materials.
But we’ve also seen notable buying in: diversified investments, newspapers, long-term care facilities, insurance companies and retail.
Stay the course
All of this just reinforces two things I’ve been saying here for weeks as the markets crumbled around us and many investors were losing their heads.
- First, investors dramatically over-reacted to the potential damage from sub-prime loans.
- Second, even if the economy does slow down because the sub-prime loan mess takes even more of a toll on home values and consumer confidence, the Fed will step in with enough rate cuts to maintain reasonably robust growth. Economists now predict the Fed will cut anywhere from a quarter of a percentage point to 1.25 percentage points over the next several Fed meetings.
I’m also sticking with my call that we have not seen the last of the volatility of the past several weeks. We caught a reprise this week with solid strength on Tuesday followed by weakness on Wednesday.
One problem is that bad sub-prime mortgages could still be lurking anywhere in about $1 trillion worth of short-term structured debt products floating around out there. As those products roll over in the coming weeks – and need to get refinanced somehow or wind up as loans on the books of banks -- we’re likely to see more scary problems surface.
This means that the key tactic you need to follow now is to line up the stocks you like, and wait for a day when the market is weak to add to positions. For traders, it all means that the good times will continue -- because traders thrive on volatility.
Three retail plays
Whether you are a trader or a long-term investor, here are a three small-cap stocks that the insiders were purchasing with gusto recently. I’m focusing on retailers since conventional wisdom holds that the consumer will fold because of the sub-prime problems and an economic slow down. But I just don’t think that will be the case. So these three could make great contrarian plays.
Eddie Bauer Holdings (EBHI) The shares of outdoor and casual retailer Eddie Bauer Holdings have fallen nearly 40% in just six weeks to trade for about $8.50 recently. Part of the problem: The retailer’s darker summer color schemes did not go over well with consumers, chief executive Neil Fiske said in the company’s most recent conference call.
But insiders believe they will be able to revive the brand. Several of them – including Fiske – bought $520,000 worth of stock in the past month, in the $8 range.
Eddie Bauer came out as an initial public offering in the summer of 2005, and it’s pretty much gone down hill from there. In July, Eddie Bauer hired Fiske to help turn the company around. During his four years as chief of the Bath and Body Works division of Limited Brands (LTD), he helped sales at the beauty and bath products division grow by 44%.
Gander Mountain (GMTN) is another outdoor retailer that’s gotten crushed. It’s fallen 40% to $7.70 from $13 just last June. Same store sales rose a respectable 4.2% in the second quarter, but costs shot up. So the company reported big losses once again.
A gaggle of insiders have stepped up to buy in the weakness. They are mostly line officers who work close to the ground at the company – from the vice president of store operations, to the head of merchandising, the vice president of retail sales, the general counsel and the chief financial officer. Since they are closer to the business than directors, their buying may offer more of a buy signal.
But here’s another angle most observers probably haven’t noticed about these buyers. With the exception of the finance chief, they are all up around 15% or more on their cumulative purchases of Gander Mountain stock in recent years. Translation: This is one shrewd gaggle of buyers. So their purchasing is worth following now.
Coachmen Industries (COA) has fallen more than 30% since June to trade recently for about $7 a share. The company makes recreational vehicles and pre-fabricated modules used to construct homes. The company has suffered from weakness in both recreational vehicle and home sales. It also cut its dividend in late August to preserve financial strength. Investors hate that. But insiders see value at around $6.50 a share – where they recently purchased $340,000 worth of stock.
The bottom line: These are micro-cap stocks – so they could bounce around a lot in the volatility. This means you should be patient as a buyer. Remember, too, that insiders buy for the long haul, and its no different with these three. Do not take positions looking for instant, big gains.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. 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/ . InvestorIdeas.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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