Insiders on Board

11/02/2009 2:00 pm EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Jack Adamo of Jack Adamo's Insiders Plus likes the signs of insider confidence in Novatel, which got much cheaper last week.

Novatel Wireless Inc. (NASDAQ: NVTL) provides wireless broadband access solutions for the mobile communications market worldwide. The company offers third generation (3G) wireless PC card and ExpressCard modems, embedded modems, USB modems, and other fixed-mobile convergence (FMC) solutions. It also provides many related support services.

Novatel recently pulled back from a huge run-up to a near-term high of $14 after announcing a mixed shelf-offering. That’s an authorization to issue shares and/or bonds of various types. The market did not like the possibility of earnings dilution from more shares. The firm has, so far, not announced a share sale, just the authorization.

The thing that caught my attention with Novatel lately is that, despite the big rise in price this year, insiders exercised more than 153,000 options and have not cashed a single one. I pay more attention to this sort of activity nowadays than regular insider buying. The latter is very often public-relations motivated. The exercises without sale are not watched by most analysts or the public and have no PR value. Also, the option owners have to pay tax on the imputed gain upon exercise; when they don’t even sell enough stock to pay the taxes, that’s usually a strong indication they expect the stock to continue to rise.

The story in a nutshell here is that the company has come out with a battery-powered device that instantly generates an Internet hotspot almost anywhere. The device has been extremely well received and tech guru Fred Hickey speaks highly of it. Fred is the source of the lead we got for Sybase (NYSE: SY), which is up 20% for us in the two months we’ve owned it. He’s a very good analyst.

The shares trade at a very pricey 33 times next year’s expected earnings, but there’s a good chance earnings will significantly beat expectations. In any case, the projected growth rate justifies the price, if it can keep it up for even one more year.

If the market is weak this week, as I expect, we may be able to get the stock within our buy range. Buy Novatel Wireless up to $11.75. [Shares now trade below $9, after an 18% plunge Thursday as Novatel forecast disappointing sales of its flagship product in the current quarter—Editor.]

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