There are a number of ways for investors to screen stocks and find potential investment opportunities. A couple of the ways this website focuses on are by tracking hedge fund holdings and insider trading interest. At Insider Monkey, our studies have shown that, historically, those who follow the picks of the top hedge fund managers can beat their index-focused peers by a very impressive margin; see just how much.
With regard to insider sales of stock, the conventional wisdom is that it is impossible to really determine the reason that insiders sell their stock in a company. However, when insiders are buying a stock, it may be a bullish sign for the stock. If a corporate insider is willing to buy a company’s stock at the market price, it is a strong signal that the insider believes the stock is headed up. The insider clearly has superior information regarding the position of the company.
As a result, several academic studies have concluded that tracking insider transactions may be potentially profitable. In this article, we will examine two companies with recent insider purchases. By examining these companies, we may see if there are potential opportunities for investors.
The first case
American Realty Capital Properties Inc (NASDAQ:ARCP) is a publicly traded real estate investment trust. There are a number of different types of REITs in the marketplace, however American Realty is focused on acquiring and operating single tenant, freestanding commercial real estate properties. The Company states it is focused on acquiring medium and long-term leases from investment grade corporate tenants in order to provide a steady stream of income with growth potential for its investors.
Three insiders recently reported to the SEC that it had purchased the Company’s stock. Co-founder M. William Kahane reported purchasing 30,000 shares, to bring his total ownership amount to 314,574 shares. CEO and Chairman of the Board Nicholas Schorsch also recently purchased 30,000 shares to bring his total ownership to 1,234,811 shares. All together, there have been 21 insider purchases and 9 insider sales in the last three months.
Some background
American Realty Capital Properties Inc (NASDAQ:ARCP) owned 692 properties with 100% occupancy as of the end of February. The weighted remaining term on the leases for the properties was 11.5 years. About 79% of the rents were paid by companies with investment grade ratings.
The Company recently reported that it had closed an additional $14 million in single tenant net lease acquisitions. During the fourth quarter of 2012, the Company paid a dividend of $ .892 per share, and it currently has a dividend yield of 5.62%.
Revenue for Q4 of 2012 was $5.6 million, which was a $0.8 million increase over the prior quarter. American Realty Capital Properties Inc (NASDAQ:ARCP) had made an offer to purchase Cole Credit Property Trust III for around $9 billion, but that deal is now off the table. The Company had previously acquired ARCT III, a non-traded REIT.
Performance
American Realty Capital Properties Inc (NASDAQ:ARCP)’s share price has performed extremely well, up 60.53% in the past twelve months, and up over 27% YTD. Trading volume surged in mid February, but appears to be on a downward trend since then. Further, the price appears to be hitting recent resistance around $16.6. The Company will need some good news or other catalyst to break through that resistance level.
A couple peers
Investors looking in the REIT sector may also want to look at W.P. Carey Inc. REIT (NYSE:WPC). W.P. Carey had two divisions, a real estate investment management division, and a real estate ownership division. The real estate ownership division also invests in commercial single-tenant properties, similar to American Realty Capital Properties Inc (NASDAQ:ARCP). W.P. Carey Inc. REIT (NYSE:WPC) most recently paid a dividend of $.82 at the end of March for a dividend yield of 4.76%. The Company’s stock is up 33.42% YTD, but appears to be hitting resistance at $69.
Another REIT option is Liberty Property Trust (NYSE:LRY). Liberty Property has a market capitalization of $5.0 billion with a dividend yield of 4.55%. The Company recently reported a profit of $71.2 million, at $.60 per share, versus $37.1 million, at $.32 a share for the prior year period. The increase in profit was due to property dispositions and increased tenant occupancy. The stock is up 18.32% this year.
The second case
Esterline Technologies Corporation (NYSE:ESL) is a specialized aerospace and defense manufacturing company. Henry Ward Winship, IV, a director of the Company, recently completed a pair of insider purchases representing 28,000 shares.
Some background
The Company recently reported first fiscal quarter results of net income of $25.1 million, or $0.80 per diluted share, on sales of $458.0 million. Prior year first quarter income was $22.8 million, or $0.73 per diluted share, on $470.9 million in sales. Esterline’s share price is up over 12% YTD, but is down 5.8% so far in April.
Performance
The stock is currently trading right at its 50 day SMA, but well above the 200 day SMA. There appears to be longer term resistance at around $75. Thus, it may take some significant impetus to move the stock above that level.
Further, it should be noted that the defense and aerospace industries may face headwinds due to federal budget concerns moving forward. The Company did state that it is poised for growth in other sectors, including high-speed rail projects in China, nuclear power initiatives in the U.K., and casino gaming console installations. By diversifying, Esterline appears to be protecting itself from any possible downturn in the aerospace industry.
A peer
A competitor in the aerospace and defense sector is Rockwell Collins, Inc. (NYSE:COL). Unlike Esterline, Rockwell currently has a dividend yield of 1.94%. Rockwell has a P/E ratio of 14.17, versus a P/E ratio of 19.96 for Esterline. Rockwell’s stock prices is up 6% YTD, and has greater short interest with a short float of 5.34%.
Final thoughts
American Realty and Esterline may be investment opportunities if the insider purchasers are correct. American Realty Capital Properties Inc (NASDAQ:ARCP) appears to be poised for growth, and has an attractive dividend yield, while federal budget issues may need to be sorted out before further significant growth for Esterline is a possibility. Investors should take a closer look at these companies to see if they fit with their personal investment criteria, while paying attention to up-to-the-minute records of insider transactions.
Disclosure: none
