Are These Insiders Telling You to Buy?
Jun 13th 2012 3:01PM
Updated Jun 13th 2012 4:36PM
Famed money manager Peter Lynch told us executives can sell their stock for any reason, but typically buy only for one: They think the price is going to go up!
Today, I've highlighted two insiders who've recently made big purchases of their own company's stock. These aren't option grants but rather are insiders putting their own money on the line, buying shares at market prices just like you and me.
I then paired that information with insights from the members of Motley Fool CAPS to see if they think the stock has the same prospects the insiders do.
|McDermott (NYS: MDR)||John Bookout, director||$1.4 million||*****|
|Navistar (NYS: NAV)||Carl Icahn, 10% owner||$21.6 million||**|
Source: Company filings.
Although following the lead of insiders can be profitable, we still recommend you do further due diligence to determine whether these stocks ought to be sold from your own portfolio -- or would make a good addition! So this isn't a list of stocks to sell or buy, but just the inside track on companies you might want to check out further.
Everybody in the pool!
It's not just McDermott director John Bookout buying shares; a host of insiders are diving into the stock that had been down 50% from its 52-week high. Bookout might have bought the most, but three other executives were scooping up shares as well totaling more than $1.2 million.
It's been an ugly period for engineering and construction as the sweet spot of drilling moved further from the coastlines. Seadrill (NAS: SDRL) has looked like a better investment than Hercules Offshore (NAS: HERO) , but as a long-term shallow-water specialist itself, McDermott was finding its excursions into the Atlantic deeps more challenging than expected.
But things turned for McDermott last quarter as profits came in well ahead of expectations even if revenues fell 19% from the year-ago period. It had a strong uptake in its backlog, and while investors know backlog rarely translates into a one-to-one increase in revenues, the 21% jump it reported in May suggests its business is getting better.
When I made my outperform CAPScall on the E&C firm I was impressed with its healthy balance sheet at a time when it was offering an exceptionally discounted price. While the stock continued to trade down from that point (and it's still down 19% after the bounce it got from insider buying) I'm convinced McDermott's on the road back.
Add McDermott to your watchlist to see if it keeps its head above water, then let us know on the McDermott CAPS page if you think the group of insiders snapping up shares might have an inkling which way the stock is going to go.
Give a hoot, don't pollute
There's got to be something wrong with a regulation that would have made it cheaper or easier for Navistar to sell trucks that weren't compliant with EPA regulations so long as it paid a fine. It certainly would have given it a competitive advantage over rival truckmakers like PACCAR and engine manufacturer Cummins (NYS: CMI) . Both of those companies invested in the technology to make their trucks and engines compliant, so letting Navistar get by with just a fine seemed wrong.
But it also suggests the EPA, in making both the regulation as well as the rule-making process that let Navistar slide, is a drag on the trucking industry and the economy.
For Navistar, though, it's in a bit of a bind. It's going to have trouble moving the trucks it already has while not being able to make new ones. While there was talk of it selling itself to someone, analysts are in disagreement as to whether that's likely to happen. Certainly with Carl Icahn adding to his stake in the trucker -- he now owns about 12% of the stock -- it's probable we're going to see some action here. It's said he previously wanted Navistar to merge with specialty truckmaker Oshkosh Corp., though others see a hookup with Volkswagen or Fiat more likely.
Navistar's stock has been cut in half, but Icahn's role should see that rise as speculation causes investors to bet he'll extract some value out of the discounted company. I'm rating the truckmaker to outperform the markets on CAPS, though CAPS member MajorBob04 believes the court ruling overturning the EPA's decision will serve as a major drag on the stock.
Add Navistar to the Fool's free portfolio tracker then let us know on the Navistar CAPS page if you think this big rig can turn itself around.
On the inside track
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At the time this article was published Fool contributor Rich Duprey owns shares of Seadrill, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Seadrill. Motley Fool newsletter services have recommended buying shares of Seadrill, PACCAR, and Cummins. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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