Why Are Insiders Betting on These Distressed Communication Equipment Stocks

In an industry dominated by a few giants like QUALCOMM, Inc. (NASDAQ:QCOM) and Cisco Systems, Inc. (NASDAQ:CSCO), news about smaller companies are not that popular. However, a couple of insider purchases in the communication equipment industry have caught my attention lately: directors and officers at ViaSat, Inc. (NASDAQ:VSAT) and Crossroads Systems, Inc. (NASDAQ:CRDS) have been adding stock to their portfolios.

ViaSat, Inc. (NASDAQ:VSAT)

What´s interesting about these acquisitions is that both companies are quite distressed in terms of profitability. So you might wonder, what led insiders to purchase their stock? And, are these companies worthy additions for your own portfolio?

The Mid-Cap Option

ViaSat, Inc. (NASDAQ:VSAT) is a provider of high-speed satellite broadband services and secure networking systems, products and services. Since it released its last quarterly results (last Tuesday, Nov 12th), at least 17 Form 4s were presented at the Securities and Exchange Commission. However, most of them were not actual purchases, but rather stock units granted by the company. Notwithstanding, its Chief Financial Officer, Leroy Bruce Dirks, did acquire stock. On three separate transactions -two on Nov 14th and one on Nov 19th, he bought a total of 1500 shares: 500 for $61.47 each; 500 for $61.36 a piece; and 500 for $58.07.

Stock now stands around $58.31 per share, which means that Dirks still perceives some downside since his acquisitions. However, the price that he paid for the stock is either below or slightly above its 200 day moving average of $59.91, but nowhere near its 52-week high point of $73.43. Being this the case, the firm´s CFO might have found a good entry point for a long-term investment.

Dirks´ purchase follows a few developments at ViaSat, Inc. (NASDAQ:VSAT). For starters, the company´s market capitalization recently surpassed the lower end of the S&P 500, which is quite a big deal. However, his main bet seems to be placed on growth. Although ViaSat currently operates in the U.S. and Canada, international expansion opportunities, especially in third world countries with poor communications infrastructure, are huge. Maybe it’s time to buy and hold.

The Nano-Cap Option

Crossroads Systems, Inc. (NASDAQ:CRDS) is a nano-cap data protection solutions and services worldwide provider. Since the beginning of November, E. Jeffrey Eberwein, board director, bought 80,600 shares at prices ranging from $1.05 to $1.50 per share. Shares already trade at $1.53 each. Eberwein now holds 780,600 shares of the company.

The aforementioned purchases came after the company said it will lay off 40% of its workforce, and “will focus sales and marketing efforts on the Company’s previously announced strategy of primarily leveraging OEM and strategic partners with respect to the Crossroads StrongBox product” (Form 8-K).

Hedge Fund Bulls

Sixteen of the major hedge funds that we track are placing bets on ViaSat, Inc. (NASDAQ:VSAT). The most bullish of them all is Seth Klarman’s Baupost Group, which holds 11 million shares (which account for almost 20% of its portfolio). Klarman’s fund is followed by Bob Peck and Andy Raab’s Fpr Partners that owns almost 6 million shares, which make up for roughly 17% of its holdings.

Crossroads Systems, Inc. (NASDAQ:CRDS) is about 15 times smaller than ViaSat in terms of market cap. Consequently, hedge funds betting on its future are substantially less. Amongst the main funds that we track, Mark N. Diker’s Diker Management and Israel Englander’s Millennium Management hold stakes in the company and, in both cases, they don’t even account for 0.2% of their portfolios.

Disclosure: none

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