Imitate This Insider Purchase

On Monday, Robert Mehrabian, CEO and Chairman of the Board of Teledyne Technologies (NYSE:TDY), a diversified industrial electronics company, purchased 10,000 shares of the stock at an average price of $60.95. Meharbian now owns just over 50,000 shares directly and almost 140,000 additional shares in his trust, so this is a small but still notable increase in his holdings. This is particularly true because while insiders have many reasons to sell their stock- including diversification or any cash needs- in order to ignore these factors and buy still more shares in the company they have a good deal of wealth and future income tied into, they must be confident of the stock’s prospects (read more about insider trading). Teledyne was recently downgraded despite its report of record-setting quarterly revenue last week.


Mehrabian had previously bought 10,000 shares of Teledyne in mid-March at $58.77 per share, and 10,000 shares about a year ago at $44.45 per share. With the stock at about $61.50 as of this writing, these two purchases have resulted in a four-month return of 4.6% and a one-year return of 38%, respectively. So Mehrabian has a fairly good track record of identifying when Teledyne has room to the upside (browse Mehrabian’s history of insider trading). Furthermore, two other insiders bought shares last June and they have seen the value of their shares rise as well. Steven Richman’s East Side Capital reported ownership of 1.1 million shares of Teledyne at the end of March this year, moving aggressively into the position last summer. Therefore, East Side has also caught the gains that the stock has made since then. Fisher Asset Management and Royce & Associates also had positions in Teledyne at the end of the first quarter of a little over 800,000 shares apiece.

Teledyne’s business units include Instrumentation, Digital Imaging, Aerospace and Defense Electronics, and Engineered Systems. In the second quarter results announced last week, Instrumentation and Digital Imaging saw revenue gains compared to the second quarter of 2011 while ADE’s performance was flat and Engineering Systems experienced a decline in revenue. Operating profits were generally down, but the company was able to bring its corporate expenses for the quarter down as well and beat earnings per share estimates for the fourth quarter in a row. At an enterprise value of $2.3 billion, Teledyne now trades at 16 times trailing earnings and 14 times forward earnings. So far this year, the stock is up about 10% which puts it fairly close to the S&P 500’s return, and analysts expect earnings for the next couple quarters to be well above where they were in the previous year.

Rockwell Collins (NYSE:COL) provides a number of similar products to Teledyne’s, including navigation and aviation electronics. It trades at 12 times trailing earnings, with sell-side analysts expecting little growth over the next year. Esterline Technologies (NYSE:ESL) and FLIR Systems (NASDAQ:FLIR) produce imaging systems and sensors for aerospace, defense, and government clients and also make for good peers. These stocks trade at 14 to 15 times trailing earnings. Teledyne does not look cheap compared to any of these comparable companies, so an investor must put a good deal of weight on Mehrabian’s purchase to buy it as opposed to its peers. Finally, Curtiss-Wright (NYSE:CW) designs precision components and flow control products. It carries trailing and forward P/E ratios of 10, which makes it a value stock compared to Teledyne but indicates that Wall Street analysts expect Teledyne to experience more growth over the next year. So far this year Teledyne’s 10% gain leads the pack, with Esterline up 5% and the other three stocks down 10-20%. The aerospace and defense industry is currently confronting the prospect of automatic cuts to federal government spending, including military and defense spending, at the end of the year but Teledyne at least is matching market performance so far.