In recent weeks, as officers and directors sat down for their periodic board meetings, many of them decided that stock buyback programs are a good use of company funds.
In addition to spending the company?s cash on shares, some of these insiders are spending their own cash to boost their stakes in the company. It's hard to find a greater vote of confidence than that.
Here are three companies that have recently seen a significant amount of insider buying:
1. Beazer Homes (NYSE: BZH)
Here?s a rarely asked question: Do insiders read the research reports on their own companies?
If the insiders at this homebuilder do, they likely were moved to action. Analysts at Sterne Agee boosted their price target to $23 last week, which corresponds with the projected book value in 2015. (Much of the book value assessment comes from an expected reversal of a deferred tax asset (DTA).)
Later in the week, on Aug. 1, five insiders acquired a combined 34,000 shares at an average price of $16. Those purchases follow a $300,000 buy-in by a separate insider in early June.
To be sure, the financial press has already written off any hope of a housing market upturn. Beazer and others have seen their shares steadily erode since the year began.
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However, investors? worst fears about price wars seem a bit overblown. ?Beazer management is not seeing mass discounting in its markets,? note Stern Agee?s analysts, adding that ?Beazer is not seeing this activity in its local markets nor are any of our other covered companies that have recently reported results.?
Still, investors can focus on the possibility of brightening prospects for homebuilders in 2015 and beyond if they're looking to own these stocks now. Insiders are clearly taking the long view.
2. Government Properties Income Trust (NYSE: GOV)
Insiders aren?t always looking to snag upside for a seemingly undervalued stock. Sometimes, they just want to get their hands on a company?s income streams. That logic propelled Adam and Barry Portnoy, a pair of directors at this real estate investment trust (REIT), to acquire nearly $20 million in stock at the end of July. That purchase gave them access to this REIT?s 6.7% dividend yield.
GOV is a favorite yield play of my colleague Nathan Slaughter, who profiled the company late last year. As Nathan wrote, ?this REIT's vacancy rate tends to be stable in any economic climate compared to commercial office buildings.? He also thinks the predictable nature of rental cash flows allows GOV to magnify gains through the use of debt leverage. Lastly, Nathan notes that ?investors can find (a nearly) 7% dividend yields in a wide range of stocks, but you'd be hard-pressed to find another one with such low chances of a dividend cut.?
3. Titan International (NYSE: TWI)
In my May profile of fund manager Mark Rachesky, I noted that he had been building a stake in this beleaguered tire maker. By then, his firm had already owned more than 10% of Titan.
Well, his investment is off to a bad start. His cost basis in his previous investments was above $17, though when shares fell below $15 in recent weeks, Rachesky decided to invest another $6 million. (He?s been joined by a pair of insiders who spent more than $200,000 each.)
The outlook for Titan remains challenging. Demand for massive truck tires (typically used in mining and agriculture) remains subpar, and sales will likely be stuck around $2 billion in both 2014 and 2015. In the longer term, however, these tires wear out and need to be replaced. Rachesky and his fellow insiders are likely taking the long view, as they note that shares are now 50% lower than they were back in 2011.
Risks to Consider: These stocks lack near-term catalysts, and judging by the short-term track record of insiders, many of whom are notoriously bad market-timers, you need to have a multi-quarter time horizon with these stocks.
Action to Take --> Insiders tend to gravitate toward their own company's stock when they perceive that investors are mistakenly focusing on short-term woes and instead should be focusing on longer-term opportunities. All three of these firms appear poised for a solid rebound in 2015 and beyond.
P.S. -- For months, my colleague Nathan Slaughter has been telling readers of his High-Yield Investing advisory about an enormous opportunity in real estate. And thanks to stocks like GOV, regular investors have a chance to get in on the action. To learn more about Nathan's absolute favorite picks in real estate, follow this link.