Magnetek's Turnaround Attraction

Magnetek's (MAG - commentary - Cramer's Take) near-term financials may look gruesome, but the changes underway at the firm seem a good bet to correct that blight. Getting in before the fundamentals are demonstrably improved could prove a smart bet.

Doing just that has so far worked out well for Bryant R. Riley. Riley is the sole equity owner of Riley Investment Management, LLC, and a general partner of SACC Partners, LP. Both entities have purchased large chunks of Magnetek. As of June of this year, SACC had a position equal to 5% of Magnetek's shares outstanding.

Riley Investment Management first made its presence known in early July, noting a 10% stake in the firm via a Schedule 13G. Since then, RIM has increased its stake to 14%, with Form 4s showing purchases from $2.63 all the way up to its Sept. 29 buy at $3.42. That's a nice bit of averaging up, a bullish insider pattern I always like to see.

Riley has the ability to make his own luck more than most institutional investors. Besides a penchant for using SACC as an activist shareholder, Riley also owns B. Riley & Co., a California-based brokerage, trading and research house. B. Riley & Co. upgraded Magnetek to a buy early in October.

Although there has been another insider purchase by a new and respectable director, Yon Yoon Jorden, I'll admit that Magnetek's insider profile is much more one-dimensional than I usually like. Nonetheless, I like the turnaround prospects for Magnetek, and believe Riley, et al., may be on to something.

The Business

Magnetek has two divisions. Its Power Electronics Group makes electronic converters, inverters, rectifiers and systems for consumer and industrial applications. The company's Power Control Systems business focuses on digital power- and motion-control systems for material handling, elevators and mining, as well as large, commercial alternative-energy applications.

---

At the time of publication, Moreland was long Magnetek, although holdings can change at any time.

Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights, founder of the Web site InsiderInsights.com and the director of research at Insider Asset Management LLC. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland appreciates your feedback; click here to send him an email.