I've been tracking the moves made by insiders for more than two decades -- but recently, I've been paying less attention.
That's because my experience has shown that following the moves of insiders in a rising stock market isn't fully helpful, as a rising tide lifts all boats anyway, and stocks with heavy insider buying don't tend to outperform.
The same can be said for a falling market. Even the stocks that have solid recent insider support can't avoid a market downdraft.
There is, however, one market phase in which I focus more on insider transactions: a sideways market.
When many stocks are stuck in a holding pattern, it's been my experience that the select few that are supported by insider buying often manage to break out on the upside. (I'm relying on years of experience with these insider signals, not empirical data, to support this assertion.)
It looks like we're in a sideways market once again. At a recent 1,680, the S&P 500 Index is close to where it was in late May. And the push/pull dynamic of a moderately growing economy and tepid corporate profit growth may lead us into an extended sideways market. In effect, there are too many reasons precluding the market falling out of bed (strong balance sheets, robust cash flow) or rising sharply (increasingly extended valuations).
That's why I'm watching the insiders more closely these days. Here are some notable purchases that have popped up on my screen recently. (All data courtesy of InsiderInsights.com
1. Accuride Corporation (NYSE:ACW)
This company is notable for its concentrated stock ownership among a handful of investment firms. Coliseum Capital, Cetus Capital and Littlejohn Capital all own more than 10% of Accuride (qualifying them as insiders). And recently, all three firms have added to their stakes, acquiring more than 1 million shares collectively since early June (at an average price of around $5).
It's been a bumpy ride since Accuride's early 2010 IPO, and shares have since fallen by half from its post-IPO trading range. Demand for Accuride's truck brakes, wheels, bumpers and sets has been slowly building out of the 2008 downturn, though the company has been unprofitable throughout that stretch.
Looking back over the past half decade, this was a company in need of an overhaul. Inventory of raw materials grew bloated, quality concerns led to lost business, and Accuride's network of factories was too large for the company's revenue base. New management took the reins in 2011, shuttering a key factory and improving quality control. The company now appears poised to move into the black in 2014, as analysts anticipate earnings per share (EPS) of around $0.60.
Insiders may be loading up on the turnaround prospects, and these shares represent deep value: The enterprise value stands at around $550 million, much less than the projected $800 million revenue base.
2. NuStar GP Holdings, LLC (NYSE:NSH)
In recent months, we've been focusing on companies with "rich parents". These are master limited partnerships (MLPs) that can profit from generous capital injections from the parent companies that spun them off. For example, my colleague Elliott Gue cited
oil and gas pipeline operator NuStar as example.
Well, insiders spot value at the "rich parent" right now. A pair of directors bought 78,000 shares back in April (at an average price of $30.75). There were additional modest purchases over the summer, and in September, director William Greehey bought another 50,000 shares. The twist? The recent buying was done around $20, after shares had slumped badly.