RealMoney Silver - Insiders Respecting TriMas

Insiders Respecting TriMas
By Jonathan Moreland
RealMoney.com Contributor
10/4/2007 2:38 PM EDT

Not all stocks whose insider buying I look at have a long trading history. Today's company, TriMas (TRS) , is a case in point. But the fact that the company's IPO was relatively recent doesn't necessarily diminish the importance of the insiders, and definitely doesn't in this case, as I really like this stock.

But before we dig deeper into that, let's take a look at the market as a whole and see what type of environment this company is in.

Already leaning bullish in early September, my insider-based market indicators swung to an outright buy signal aprés Fed.

I would love to think that my latest buy signal will last as long as the one issued in July of last year, which harkened a solid six-month ascent for the market. Given the still uncertain state of the U.S. economy -- which has worrisome signs of both recession and inflation -- I have my doubts.

Then again, this is just the sort of wall of worry markets tend to surprise investors by climbing. And while I am intellectually inclined to agree with all of Doug Kass' well-presented scenarios about the damage to equities that economic imbalances may yet inflict, I think there is at least as good a chance that stocks could eek out reasonable gains in coming months as the world's economy muddles through its current turmoil.

Which is why it's usually best for investors to leave the economic data debate to the economists and stick to more ground-level indicators to base one's short- and medium-term stock bets on. For me, that means looking at insiders, and my confirming technical indicators.

If either of these now-positive metrics change (and they have proven able to change in short order twice already this year), I will change my bullish stance quickly. But even two weeks after going 100% invested, I still rate the opportunity cost of being scared out of this market as higher than the risk of losses from sticking with -- and adding to -- my insider-inspired positions.

Looking Under the Radar

And the number of my positions is easy to increase considering the immense population of stocks with significant insider buying over the past couple of months for me to research further. One recent addition is TriMas.

TriMas is a diversified industrial firm that makes engineered products for end markets as varied as packaging, energy, aerospace, automotive, recreational, defense and medical equipment. While some of Trimas' end markets may be negatively affected by a slowdown in consumer spending, if it comes, the majority of the firm's revenue is generated from industrial and energy customers. These markets are not only healthy, they also generate higher operating-profit margins.

With its decidedly unsexy businesses, TRS has garnered little buzz since its IPO in May of this year. Considering the market conditions it was born into, however, trading more-or-less sideways could be considered something of a success.

For their part, insiders obviously think their shares will earn more respect as they season. Eight of them invested a total of $1.94 million in TRS in August, at prices ranging from $11.60 to $12.44.

While there is scant trading history for this group of buyers, and all of the purchases represent initial positions, I view the buying cluster as bullish in and off itself. Given the trepidation many investors feel about the global economy and the less-than-enthusiastic welcome for the company's shares, the decision by so many insiders to put money into their stock is a respectable vote of confidence in TRS' prospects.

The insiders' bullishness likely follows from their belief that the bottom-line growth prospects for their company are largely under management's control. Analysts are only modeling for 3.5% to 4.0% revenue growth over the next year -- hardly an overzealous forecast. Yet EPS is expected to increase a solid 26%, from 95 cents this year to $1.20 in 2008. Debt reduction and operating cost cuts are expected to make that growth a reality, and management obviously feels it can execute.

If they do, TRS should gain more respect in the form of EPS multiple-expansion at least up to its industry's average. Quantifying the value in Trimas' shares, Walter Liptak with Barrington Research points out that "TRS' 2007 and 2008 valuation metrics include P/E of 10.4x and 9.9x, EV/EBITDA of 6.4x and 6.2x, and EV/Sales of 0.84x and 0.80x. Our industrial group is trading at a forward P/E of 15.0x, EV/EBITDA of 10.5x and EV/Sales of 1.7x." Following from this, Liptak's target price for TRS is $20.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider TriMas to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.