Buy These 3 Stocks Insiders Love
With one insider purchasing $25 million of their own stock last week and two others making large purchases as well, it is safe to say that these executives think their stocks are oversold. Investors looking for safe bargains in this market should consider any of these three stocks.
There are plenty of reasons to be pessimistic on the market as global equities have gotten off to a horrid start so far in 2016. The litany of worries is substantial and seems to be ever increasing in the first few weeks of the year. This was the third quarter in a row that profits declined year-over-year within the S&P 500 meaning stocks are in a full on “profit recession.” The main culprits for declining earnings continue to be the collapse of oil prices, the strong dollar, and anemic global demand.
Europe is benefiting somewhat from their quantitative easing program initiated by its central bank in March of last year, but growth remains fragile and some European bank stocks are trading at the same levels they did during the financial crisis. Political tension is also increasing across the continent as it deals with the largest migration wave since WWII.
In Asia, Japan is in contraction. China’s growth continues to slow with a recent double-digit fall in both imports and exports recently reported. Another devaluation of the Yuan seems likely in the near future due to falling currency reserves. In South America, Brazil is in its biggest recession in decades and Venezuela looks ready to circle the drain.
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However, as scary as the market action and headlines have been in the last months, there are some reasons to maintain some optimism especially for domestic stocks. Auto sales continue to be robust and the unemployment rate is at its lowest levels in years. We have also seen some decent wage growth recently and retail sales are holding up as well. Mortgage rates have fallen for six straight weeks and mortgage applications for new houses just posted a very strong number. The prospects for the housing recovery continuing are strong.
As bad as things are globally, it appears the domestic economy is shrugging off these worldwide troubles at the moment. GDPNow, which has probably been the best forecaster of economic growth in recent years, currently has the economy posting a very respectable 2.7% GDP growth level in the first quarter. While not robust compared to previous post-war recoveries, that number looks stellar in the current global environment.
One of the items I have been more than encouraged to see lately is the behavior of insiders. Over the past four to five weeks, insiders in companies across the market are showing the highest ratio of buying to selling in over four years. Obviously, corporate America is signaling they believe the sell-off in equities has gotten overdone, at least in their own stocks.
So what are insiders buying that look like great long-term values right now? Let’s start with JPMorgan Chase (NYSE: JPM). CEO Jamie Dimon made a statement last week by adding more than $25 million of new shares after this stock had fallen some 20% to begin the year. Like most banks, the shares have been hit by falling interest rates early in the year. However, on a longer-term basis, the stock looks like it is in deep value territory right now. The shares go for under 10 times earnings, yield three percent and sell just a tad below book value as well.
Despite enjoying the best year for housing starts in 2015 since 2007, home building stocks have generally fallen significantly over the past few months on worries that global turmoil will tip the U.S. economy into recession – something I don’t see happening at the current time. This has led to some good opportunities to pick up some of these names on the cheap.
This is exactly what insiders are doing at Beazer Homes (NYSE: BZH) which is trading just off of 52-week lows. Eight insiders bought over $600,000 in new shares over the past week or so. The company is strong mainly in the West and the South and has little exposure to some of the weakening state economies in the oil patch. The stock also sells for around five times the consensus for earnings per share in FY2016. One watch out is the homebuilder is highly levered and one key item that has hurt the stock lately in the spike of volatility in the high-yield credit markets. Most of this increase is due to higher default rates being projected for energy concerns. If we get some stabilization in this market or investors realize the turmoil will be confined to energy names, Beazer could be the beneficial recipient.
Aerospace industrial company Triumph Group (NYSE: TGI) is another baby that has been thrown out with the bathwater due to the abandonment by investors of anything loaded with a decent amount of debt on the balance sheet or that depends on global demand. Three insiders are saying this is ‘hogwash’ as they have just bought over $6 million worth of new shares. Given that the shares go for just over four times earnings, it would be hard to say I blame them. Earnings should be flat in the coming year, but at one-quarter of the overall market multiple, it is hard to find a cheaper name in the market right now.
Investors looking for bargains in the market after a steep decline to begin 2016 could do worse than investing in these cheap names that insiders believe are undervalued.
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Positions: Long JPM
Category: Stocks
