Why Are Insiders Betting on Basic Materials?

Over the last week, insiders at Ply Gem Holdings Inc (NYSE:PGEM) and KapStone Paper and Packaging Corp. (NYSE:KS), two basic materials companies, have been purchasing stock. Let’s take a closer look at these noteworthy transactions:


The first acquisition occurred on Nov. 7th. H Matthew Paull, a Director at KapStone’s Board, added 3,000 shares to his holdings, which now amount to 12,893 shares, valued at approximately $663,000. He bought 2,800 shares at $48.44, and the remaining 200 at $48.43. He has already realized an upside of about 6%.

KapStone Paper and Packaging Corp.

A few days later, on Nov. 12th, J. Randy Nebel, Vice President and General Manager at KapStone, also bought 1,000 shares at a price of $50.9769 a piece. Following the reported transaction, Nebel directly owns 4,111 shares.

But, why are these insiders buying KapStone’s stock, if most (Tarbox, Keneally, Furer, Chapman) have been selling it over the year?

Well, the purchases follow several analyst upgrades, including a Zacks outperform rating and a boost of the stock’s price target by Deutsche Bank, BMO Capital Markets, KeyCorp and DA Davidson, amongst others. Also, a few days before the insider acquisitions, the company’s Longview Mill was recognized by the American Forest & Paper Association (AF&PA) as a leader in sustainability.

All of these factors should help the stock to remain on the steep price uptrend that it has been experiencing for about one year now. In addition to the upgrades, recent strong financial results and promising prospects help us understand the bullishness. Offering industry leading margins and returns while trading substantially below its peers means in relation to earnings, this is certainly an attractive stock to consider for the long-term.

Moreover, 21 of the leading hedge funds that we track hold positions at KapStone, whith Richard Rubin’s Hawkeye Capital leading the bunch with more than 2.7 million shares.

Ply Gem

On Nov. 8th, M Steven Lefkowitz, a Director at Ply Gem’s Board, also acquired stock from the company he works at. He added 10,000 shares to his holdings at $14.63 apiece. These are the first shares directly owned by him, although he indirectly holds more than 45 million shares, by way of several Caxton-Iseman partnerships.

The company recently went public and has traded down since its IPO, having fallen by roughly 35%, mainly driven by the firm’s weak profit margins. This has provided very attractive entry points for investors who see the real potential behind this troubled (for now) stock.

Lefkowitz’s acquisition comes right after the company reported decent third quarter 2013 results on Nov 5th and since the purchase, the stock is up about 6%. Upside potential seems aplenty, and most analysts are setting the price target at $19 to $20 per share.

Disclosure: none