Many corporate executives and directors do not appear to have had a hunch that the fourth quarter would bring big gains in the market, as insider buying was as lackluster in October as it was in September. According to a Thomson Financial report, insiders purchased $101 million worth of their own stock each of the past two months, far short of the five-year monthly average of $160 million.
But there were pockets of activity and some recent buys have captured my eye, generating one value idea.
The stocks of battered financial and health care companies saw the most avid insider buying. Executives and directors of financial companies bought 17% more of their companies' shares in October than in September, according to Thomson, while insider selling fell by 39%. And insider buying of health care shares popped 116% over the previous month.
Also of note, insiders at smaller companies were much quicker to buy shares than insiders at medium-sized or larger companies. The Thomson data show that 82% of insider buying in October was in small-caps (vs. 73% historically), which was its highest share of the total in more than 12 months. Large-cap buying represented only 3% of all October insider decisions (vs. 10% historically), its lowest share of the year.
Technology execs were the most bearish in October, according to Thomson, with selling up 38% from September and tech buying down 39%. Large-cap insider selling in all sectors during October represented more than one-half of all disposals for the first time since January 1999, the financial research company said.
The upshot is that investors in the best position to understand the future of their companies were generally more apt to buy shares of small banks and drugmakers than large-cap tech. But insiders at industrials are buying, too. Here are some of the more interesting insider purchases of the past week:
- At American Capital Strategies (ACAS) , a mid-cap provider of financing to middle-sized companies, director Philip R. Harper bought 30,000 shares at $31.77 on Nov. 5 for a total of $953,000. He has bought 15 times in the past, for an average six-month gain of 15%. Harper now has 322,000 shares. The stock closed at $30.98 Wednesday. Shares are not far from their high, making this buy particularly eye-catching. The forward price-to-earnings ratio is 11.2.
- Cooper Industries( CBE), a mid-cap maker of electrical products and hardware, saw Director Robert M. Devlin buy 5,000 shares on Nov. 5 at $64.99 for a total of $324,950. Devlin now has 11,752 shares. The stock is near its five-year high at $65.60, and the forward P/E is 18.2.
- Urologix (ULGX) , a small-cap maker of non-surgical, catheter-based therapies for treatment of urological disorders, saw CEO Fred Byron Parks buy 27,050 shares on Nov. 5 for $4.95 to $5 for $128,000. He now has 77,050 shares. He has bought three times in the past for an average six-month return of 54%. The stock is near a one-year low at $6.89.
- Spartan Motors (SPAR) - Get Report is a small-cap maker of specialty chassis and parts for fire trucks, motor homes and crash-rescue vehicles. Director David Wilson bought 1,000 shares at $10.52 on Nov. 4 for $10,520 a few days after shares crashed from the $14 area. He now has 12,000 shares. He has bought 10 times in the past for an average six-month return of 45%. The forward P/E is 18.9.
Insiders aren't always right, of course, but they are informed. Of this group, I think the Spartan situation might be the most compelling.
Late last month, Spartan reported that higher sales of its core line of RV and fire-truck chassis led to a record quarter for sales and a 29% increase in income. Shares sold off primarily because of higher steel costs, but also because of trouble at its ambulance chassis unit and a shift in production plants. The stock has enjoyed a steady uptrend for the past 15 months, and its industrial subsector -- auto/truck parts -- is one of the strongest on the board.
The balance sheet is fine, and the company announced both an increase in its dividend, and a special dividend. Shares are relatively cheap, with a P/E of around 18 on estimates for 2004 earnings growth north of 20%. If it can manage its steel costs better, and the RV market remains intact with lower energy prices, Spartan should be able to challenge the $12.50-$14 area again within the next six to nine months, giving new buyers the potential for a 20% gain along with its 2.1% dividend yield.
P.S. Don't forget -- now is a great time to get in on bargain stocks before the prices go up. Get my picks with a
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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Urologix and Spartan Motors to be small-cap stocks. 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.
Jon D. Markman is publisher of
StockTactics Advisor, an independent weekly investment research service, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. At the time of publication, Markman had no positions in the stocks mentioned. He also writes a weekly column for
CNBC on MSN Money. While Markman cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at
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