Two Board members at Texas Industries, Inc. (NYSE:TXI) have indirectly purchased shares of the company’s stock since the beginning of February. A trust connected to Sean Foley has bought 1,000 shares, at prices of about $56.50, while an LLC related to Bernard Lanigan Jr. added 10,000 shares at similar prices. Economic theory states that investors should diversify their wealth in order to avoid being overly affected by negative company-specific events; a similar logic explains why insiders should not buy their company’s stock unless they are quite confident that the price will rise. This is why it’s not surprising that stocks bought by insiders tend to outperform the market. While the overall effect is not particularly strong, it increases in power when we see multiple insiders buying (learn more about studies on consensus insider purchases). In any case we like to provide a brief overview of stocks that insiders are buying so that investors can decide whether or not they want to review the company further.
Texas Industries, Inc. is a cement and aggregates company with a market capitalization of $1.6 billion. The demand for cement in particular is dependent on construction, and so buying Texas Industries could be seen as bullish on the general economy, construction in particular, and housing. The stock price has risen 65% in the last year, though many traders are bearish as over 25% of the outstanding shares are held short. In the fiscal quarter ending in November 2012, Texas Industries reported a loss despite a 15% increase in revenue versus a year earlier; analyst consensus is that it will not be profitable in this fiscal year (which ends in May 2013) or the following one.
Interest in smaller-cap stocks such as Texas Industries, Inc. among hedge funds and other notable investors is important because these stocks are more likely to be mispriced than larger-cap, more closely-followed companies. We published a list of the most popular small cap stocks among hedge funds in our August newsletter and these names went on to outperform the S&P 500 by 18 percentage points between September and January (read more about our hedge fund strategies). Texas Industries does not seem to be particularly popular; while Mason Hawkins’ Southeastern Asset Management reported a position of 8.2 million shares at the end of September (see Southeastern’s stock picks), no other investor in our database of 13F filings owned more than $20 million worth of stock at that time. We will have to see if that changed in Q4 2012 when new 13Fs are released in mid February.
See what we think of Texas Industries compared to its peers: