This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

2 Stocks Under $10 With Big Insider Buying

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's David Peltier will appear on NBR Tuesday (check local listings) to profile small-cap stocks with recent insider buying.

NEW YORK ( TheStreet) -- There are several reasons why executives might sell their own company's stock, but there's generally only one reason why they buy it -- to make money. Legal insider trading is something I've followed ever since my RealMoney colleague Jonathan Moreland turned me onto it a dozen years ago.

It's difficult to argue that anyone better knows the health and near-term direction of a company's business than its executive management team. But as with any strategy one employs in fundamental analysis, I look at insider buying as part of the overall investment thesis. Insiders sometimes make losing trades too; so make sure there are other factors that could make a stock a worthy investment.

Word on the Street

With that in mind, I've come across two small-cap names with recent insider buying that, upon further analysis, appear poised to outperform the broader stock market over the coming quarters.

Up first is Headwaters (HW), which turned up on my radar screen earlier this month when the company's chief financial officer bought 25,000 shares of the company on the open market. The firm makes building products and also improves the efficiency of fossil fuels like coal and heavy oil.

Headwaters posted solid fiscal first-quarter (ended December) results back in February, where management delivered double-digit sales growth. In addition, the company recently re-financed $400 million of its debt, shaving off nearly 400 basis points of annual interest.

At Monday's closing price of $5.68 a share, the stock has already gained about 25% year-to-date. Even so, the company is carrying a lot of operating momentum into 2011 and I believe that Headwater shares can continue up through $7 in the coming months.

Spartech (SEH) is another name that appears attractive following some recent insider buying. At Monday's closing price of $6.96, the stock is down some 25% year-to-date; but I was intrigued to see that the firm's chief executive officer recently purchased over 36,000 shares of Spartech on the open market.

The company produces various plastics and, like many of its competitors, is facing higher input costs. That said, Spartech delivered 4% year-over-year sales growth last quarter and management expects to deliver gross margin improvement throughout the year. As a result, the company's fiscal 2011 (ending October) earnings could come in around $0.35 to $0.40 a share, compared with just $0.16 a year ago.

David Peltier is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback; click here to send him an email.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs