Jubak's Insider Buys
12/30/2005 12:00 am EST
Jim Jubak is editor of Jubak's Journal and columnist for CNBC on MSN Money, an exceptional weekly commentary offering his favorite investment ideas. Here are some highlights from a recent look a several stocks that have attracted strong insider buying.
"In November, two directors at Chiquita Brands (CQB NYSE) purchased 8,300 shares. That's not a lot of shares, but with no insider selling, I thought that was an important vote of confidence in the company's new strategy. And then another shoe dropped, loudly, on Dec. 19: CEO Fernando Aguirre bought 15,000 shares. Chiquita faces uncertainty in the banana market in the second half of 2006 thanks to recent hikes in tariffs set by the European Union. But bananas are becoming a smaller part of the company's business as its purchase of Fresh Express, a provider of bagged prepared salads and cut fruit, kicks in.
"Because the big issue for investors with WebMD Health (WBMD NASDAQ) is valuation--that is, how much to pay for the company's projected 23% annual growth over the next five years--the heavy buying by company insiders is a huge plus. Since the beginning of October, the company's chairman, chief technology officer, and a director have bought 275,508 shares at prices from $22.86 to $24.52 in 18 separate transactions. With what many Wall Street analysts regard as a best-in-class online platform for the delivery of health information, WebMD has a good shot at exceeding that growth target as more and more medical and drug advertising, like advertising in general, shifts to the Internet.
"Frequently, insiders sell their shares as fast as they can after their company goes public. But at Western Alliance Bancorporation (WAL NYSE), insiders have been buying since the June 2005 IPO. The fear that rising interest rates will cut loan demand and lead to a rise in bad loans made 2005 an iffy year for many bank stocks. But at Western Alliance, insiders have bought shares 19 times since July. That includes chairman, president, and CEO Robert Sarver, who made his name in San Diego buying and selling distressed office properties in the 1990s. Insiders have bought 147,000 shares. Western Alliance isn't operating in just any real estate market: headquartered in Las Vegas, the bank's lending has a heavy exposure to the fast-growing Las Vegas and Henderson, Nevada, markets. Our StockScouter does not rate these shares.
"Chesapeake Energy (CHK NYSE) is the current poster child for insider buying. Big buys by CEO Aubrey McClendon and president Tom Ward, who co-founded Chesapeake in 1989, have been the talk of the oil patch and of energy investors since June, when McClendon began the current buying binge. The CEO and president are making a big bet that Chesapeake can keep growing revenue and earnings at better than the 14% annual rate Wall Street analysts project over the next five years. How big is this bet? McClendon bought 100,000 shares in June, 750,000 in August, and 305,000 in September. On Dec. 14 McClendon bought 750,000 more shares (that's $24 million worth) and company president Ward joined in to buy another 750,000. Our StockScouter ratings system gives these shares a 10 out of a possible 10.
"Sometimes a shift from insider selling to insider buying just jumps out of the data. That's the case at Stryker (SYK NYSE). Through August, all company insiders did was sell, sell, sell, with the Stryker family leading the way. Then on Oct. 27, director William Parfet bought 100,000 shares at $40.05. Four more insider buys followed by Nov. 1 with the name of John Brown, former Stryker CEO, prominent in the group with a purchase of 25,000 shares on Oct. 31. This year hasn't been a great year for orthopedic companies with worries about price declines crushing the stocks of Stryker and its competitors. Stryker, which hit a high of $56.10 on Sept. 7, 2005, tumbled to $39.80 on Oct. 27. Which, not so coincidentally is when insiders started buying. Our StockScouter rates these shares a 9 out of a possible 10."