As a part of our investment strategy, we track insider purchases every day. Recent studies have shown that stocks that experience insider purchases tend to outperform the broader market. This is why in this article I will look into two small-cap companies in the Industrials segment that saw their insiders buy their stock.
First off is Methode Electronics Inc. (NYSE:MEI), a $ 1.18 billion market cap manufacturer of component and subsystem devices. The company has manufacturing, design and testing facilities in China, Egypt, Germany, India, Italy, Lebanon, Malta, Mexico, Philippines, Singapore, Switzerland, UK and the United States. On Feb. 18th, Paul Shelton, a Board Director of the company, acquired 3,000 shares for $30.14 apiece. He added the shares to different trusts of which he is a direct beneficiary, and holds, in total, about 65,000 shares of the firm, worth more than $2 million.
In addition to these insiders, several ‘hedgies’ are betting on Methode Electronics Inc. (NYSE:MEI). One of the largest investors is Chuck Royce, who owns 1.48 million shares of the company. Others worth mentioning are Jim Simons, who increased his stake in the company by 35% during the last quarter of 2013, to 423,200 shares, and Israel Englander, who more than doubled his bets on the manufacturer, to 245,400 shares.
All of this bullishness is quite comprehensible, given the company’s industry leading returns on equity and assets, coupled with very low debt levels and a below-average valuation, at 19.8 times the company’s earnings. In fact, analysts expect Methode Electronics Inc. (NYSE:MEI) to deliver average annual EPS growth rates around 25% over the next five years, widely outperforming its peers. Moreover, a mean price target of $40 per share implies plenty of upside potential from the current $31.50 price point.
Another interesting case is that of Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), a specialized security technology business with a market cap of over $444 million. The firm saw three insiders purchase its stock over the past week:
- Eric Demarco, President and CEO, bought 10,000 shares of the company over the past week. On March 14th, he acquired 6,957 shares for $7.19 each; on March 17th, he purchased another 3,043 units, for $7.12 per share. Mr. Demarco now owns over 339,100 shares of the company, worth more than $2.6 million.
- Richard Poirier, President at the Electronic Products Division, procured, on March 17th, 3,500 shares of the company, for $7.14 each, and currently holds more than 53,000 shares.
- On March 14th, Elizabeth Jane Judd, Board Director, acquired around 1,800 shares of the company: 900 for $7.08 per share, and an extra 920 for $7.07 per share. She now owns 22,000 shares of the company, worth slightly more than $164,000.
Moreover, it’s not only insiders that like this stock: analysts and hedge funds do too. Once again, both Chuck Royce and Israel Englander have large stakes in the company (2.16 million shares and 1.26 million shares, respectively).
With both insiders and hedge funds betting on these industrial companies, should you too?
Disclosure: Javier Hasse holds no position in any stocks mentioned