Insiders tend to be value players, but that doesn't mean using insider data as a first screen in your investment selection process generates boring investment ideas.
I recently presented a handful of speculative stocks in my weekly
newsletter that insiders steered me toward. The recommended list of the newsletter is looking solid, and I decided a few trading plays would be both interesting and profitable. If your portfolio can stand some risk as well, feel free to join in.
Although the following stocks are definitely not for your kid's college fund, my bet is that if you sprinkle even amounts of money among these three you will likely end up with a nice average gain. Which of these speculative plays works out is anybody's guess. But it's unlikely all three will bomb, and all you need is for one of them to pan out to make the risk worthwhile.
The travails of
are well known, and if you think it can avert bankruptcy, it's worth a punt.
Global Crossing operates a fiber optic network in the U.S., and is developing a global Internet fiber optic network. The company overbuilt its network, though, and now does not have enough customers to fill its bandwidth.
Third-quarter results were a bit better than expected, and the stock spiked back above $1 after the results were announced on Nov. 7. Cash flow is still a major concern, however, as prices decline in the face of ferocious competition.
But the firm is doing the right things to avoid bankruptcy, including restructuring, layoffs and management changes.
After cashing out big time for years, insiders have finally started buying. Two executives purchased $216,600 worth of stock in October as it fell into the realm of penny stocks, and there was also some buying in September at prices as high as $3.77.
To be sure, even though the company trades for just half of its latest stated cash on hand, there is still plenty of risk in this stock. After all, it fell to a low of 38 cents just last month. The company obviously has already hemorrhaged some of its cash hoard since the last reported number, and will continue leaking money next year.
Global Crossing will also remain volatile, which is obviously why it's a decent trading play. It could definitely dip below $1 again in the coming months, but it's just as likely to make it back up to $1.75 or even $2. Don't get greedy if the first move is up, though, and don't overreact if the first move is down.
is a software and integration firm that focuses on providing infrastructure to make incompatible technologies talk to each other.
I don't usually like this business, and I generally avoid highlighting high-risk stocks. Any advantages in software products like Vitria's have a habit of being short-lived, and integration capabilities are only as good as the employees doing the job, with no company having a monopoly on talent.
By the looks of Vitria's long-term price history, I'm not the only one less than thrilled with this company's business. Since hitting a split-adjusted $100 in early 2000, the company has generated enough ill will during its 96% decline to generate a shareholder lawsuit.
But Vitria is not some mom-and-pop tech shop running on the fumes of dwindling IPO cash. After going public in late 1999, Vitria managed a secondary before the market tanked in 2000. It still has $170 million of this cash, which amounts to $1.33 per share.
The company was also tantalizingly close to profitability last year, proving that its products and services are more than ethereal. The company continues to add to its list of well-known clients, most of whom do repeat business with it. Vitria also has a handful of well-known brokerage firms following it.
Insiders cashed out huge during the secondary offering in February 2000, and continued selling the stock even as it fell to $5 in March 2001. (Vitria definitely would have made it on our short-sighted table during this period). But in May, insiders started to signal value by nibbling at their battered shares at $4.59.
Finally, a real cluster of insider buying occurred at the end of October when three heavy hitters purchased $776,600 worth of the stock at an average price of $3.53. All three were last seen selling the stock at much higher prices.
Vitria's chart is looking healthy now, giving some confidence that the bad news may already have been priced into the stock. If you follow us into this one, keep your eye on the chart, more new-business announcements and news of the shareholders' lawsuit. I view it as a trading play, not a core holding.
is another once-respected software firm that may be worth the gamble.
NetManage has a range of integration and host-access software that was considered a must-have in the mid-1990s. But
ended up integrating capabilities into Windows that made NetManage's products as close to redundant as can be. The fact that this firm has kept itself relevant enough to survive says something about its survival skills.
Those skills were put to perhaps the toughest test yet just two months ago when NetManage slipped under a dollar and was targeted for delisting. Management announced the desperation move of a reverse stock split to keep its listing, but then saw the stock crash to a mere 18 cents.
Catastrophe was averted when Nasdaq announced that, because of Sept. 11, it would not enforce the bulk of its listing criteria until next year. The reverse split was postponed, the stock rebounded, and NetManage's insiders made a quick killing in their stock, with four executives having purchased 263,484 shares in October for an average price of 48 cents. While NetManage has nearly doubled from that average price, several purchases were made as high as 73 cents, showing that insiders expect an even bigger bounce.
With 55 cents per share in cash on its balance sheet, and having managed to become cash-flow positive in its just-announced third quarter, such a bounce for NetManage's stock may indeed be in the cards.
Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights and founder of the Web site InsiderInsights.com. At the time of publication, Moreland had no position in any of the securities mentioned in this column, although holdings can change at any time. 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 invites you to send comments on his column to