Tracking insider purchases can provide an investor with great ideas, just like keeping an eye on hedge fund moves. This is why, in this article, I will look into three companies that have seen their insiders buy millions of dollars in their stock over the past couple of weeks, despite their weak fundamentals.
First off is Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY)¸a $3.88 billion market cap a biopharmaceutical company developing novel therapeutics based on RNA interference. Last week, Sanofi-Aventis, a Large Shareholder, acquired 344,448 shares of the company for $66.88 each, in a transaction that surpassed $23 million. Sanofi now holds more than 9.1 million shares of the company.
When looking at Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY)’s fundamentals only, one cannot understand these purchases, as the company boasts negative margins and returns, while its stock looks somewhat overvalued. However, its growth prospects and upside potential make of this company a much more interesting investment option. A mean price target of $101 per share implies an upside potential of more than 68%.
Moreover, it is not only insiders and analysts that are betting on this stock. Major hedge funds including David Greenspan´s Slate Path Capital and Richard Gerson and Navroz D. Udwadia´s Falcon Edge Capital have recently started positions in is Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), with 1 million shares each.
The second case I would like to refer to is that of BJ’s Restaurants, Inc. (NASDAQ:BJRI), restaurant operator with a market cap barely shy of $1 billion. Over the past three weeks, another large shareholder (who owns more than 10% of the firm’s Common Stock), Patrick Walsh, made four big stock purchases. He acquired more than 333,000 shares of the company, spending more than $10 million, for prices ranging from $32.99 per share to $34.96 per share. After these four transactions, Mr. Walsh (and PW Partners, through several funds) owns more than 963,000 shares of the company, worth more than $31 million.
Once again, there investments are all about growth prospects and upside potential, since the company’s margins, returns and valuation are not attractive at all. However, analysts expect BJ’s Restaurants, Inc. (NASDAQ:BJRI) to deliver average annual EPS growth rates around 19%-20% over the next five years, compared to an industry mean of 14%-15%. This makes it, clearly, a long-term investment opportunity.
Nonetheless, I should also highlight that Christian Leone\s Luxor Capital Group Jeffrey C. Neal from Horizon Capital, and Patrick Welsh’s PW Partners Atlas Funds have just recently formed an activist group, and are now seeking representation on BJ’s board. This fact is also crucial to understanding the nature of Welsh’s purchases.
Finally, there’s NuStar GP Holdings, LLC (NYSE:NSH), a $1.47 market cap oil and gas midstream company engaged in refining, marketing and operating petroleum product terminals and petroleum liquids pipelines. One of the company´s board directors, William Greehey, has been buying the stock like crazy over the past month. Between March 11thand March 24th, the insider acquired more than 205,000 shares of the company, for prices ranging from $31.76 per share to $32.50 per share (actually, he paid about $52 per share for 35,000 of these shares, but the nature of these purchases was not explained in the SEC filings). Through diverse direct holdings, Mr. Greehey owns more than 10 million shares of this company.
In line with this article’s Leit motive, NuStar GP Holdings, LLC (NYSE:NSH)’s margins, returns and valuation are quite unattractive. However, long-term growth prospects look amazing. With analysts expecting it to deliver average annual EPS growth rates around 108% over the next five years (versus an industry average of 14%), and several investment gurus, including Jean-Marie Eveillard and Chuck Royce, betting on this company, should you too?
Disclosure: Javier Hasse holds no position in any stocks mentioned