5 Bargain Stocks Insiders Are Buying

09/15/2011 9:00 am EST

Focus: STOCKS

Using the valuation measure developed by the legendary Benjamin Graham, these 5 stocks are solidly undervalued and have big upside potential, as evidenced by recent spikes in insider buying.

Below we list five stocks found to be undervalued according to the Graham number. To narrow our screen, we searched among the names for those experiencing significant levels of insider buying over the past six months. All stocks have market caps over $300 million.

If you’re unfamiliar with the implications of these criteria, have no fear, review them here:

Insider Activity: Many analysts follow insider buying trends because, after all, insiders know more about their companies than anyone else. Their investment activity is closely monitored and can tell us a lot about where they feel the business is heading.

Insider buying is represented as a percentage of the share float. Companies experiencing insider buying over the past six months provide an indicator that insiders think the stock is undervalued at current levels. Inversely, insider selling serves as a negative indicator.

Graham Number: According to Benjamin Graham, a former mentor of Warren Buffett and the so-called “Godfather of value investing,” the Graham Number is the maximum price that a value investor should pay for a given stock. A stock whose share price is below the Graham Number is considered to be undervalued, or of good value.

It is a calculation for the fair-value price of a stock based on its earnings per share (EPS) and book value per share (the value of the company’s assets divided by the number of shares).

The Graham Number = Square root of (22.5) x (Trailing twelve months (TTM) EPS) x (Most recent quarter (MRQ) Book Value per Share)

We use the Graham Number to screen for potentially undervalued stocks. The market obviously does not price stocks based on the Graham Number, so share prices could increase significantly above the Graham Number, or fall far below it. This is also just one of many ways to value a stock.

Please use the list below only as a starting point for your own analysis.

ATS Corporation (ATSC) provides software and systems development, systems integration, information sharing and assurance, information technology (IT) infrastructure and outsourcing, and IT and business consulting services primarily to government agencies in the United States.

Here is a daily chart:

chart
Click to Enlarge

Net insider purchases over the last six months comes in at 460,171 shares, which represents about 7.4% of the company’s float of 6.22 million shares. Diluted TTM earnings per share are at 0.29, and a MRQ book value per share value is 2.65, which implies a Graham Number fair value of $4.16. Based on the stock’s price at $3.31, this implies a potential upside of 25.63% from current levels.

NEXT: More Deeply Undervalued Stocks to Consider

|pagebreak|

Center Bancorp Inc. (CNBC) operates as the holding company for Union Center National Bank, which provides various banking services to individual and corporate customers in Union and Morris counties, New Jersey.

Here’s a daily chart:

chart
Click to Enlarge

Net insider purchases over the last six months comes in at 474,584 shares, which represents about 3.93% of the company’s float of 12.09 million shares. Diluted TTM earnings per share is 0.68, and a MRQ book value per share value at 7.39 implies a Graham Number fair value of $10.63. Based on the stock’s price around $9.50, this implies a potential upside of 18.15% from current levels.

Skilled Healthcare Group, Inc. (SKH) operates skilled nursing facilities, assisted living facilities, hospices, home health providers, and a rehabilitation therapy business.

Here is a daily chart:

chart
Click to Enlarge

Net insider purchases over the last six months comes in at 246,100 shares, which represents about 1.28% of the company’s float of 19.18 million shares. Diluted TTM earnings per share is 0.21, and a MRQ book value per share value at 7.93 implies a Graham Number fair value $6.12. Based on the stock’s price at $4.73, this implies a potential upside of 29.41% from current levels.

NEXT: Two More Bargains with Insider Buying

|pagebreak|

Saga Communications Inc. (SGA) engages in acquiring, developing, and operating radio and television stations.

Here is a daily chart:

chart
Click to Enlarge

Net insider purchases over the last six months comes in at 26,076 shares, which represents about 0.72% of the company’s float of 3.60 million shares. Diluted TTM earnings per share at 3.06, and a MRQ book value per share value at 21.38 implies a Graham Number fair value of $38.37. Based on the stock’s price at $29.62, this implies a potential upside of 29.53% from current levels.

Winthrop Realty Trust (FUR) engages in the ownership and management of real property and real-estate-related assets.

Here is a daily chart:

chart
Click to Enlarge

Net insider purchases over the last six months comes in at 198,400 shares, which represents about 0.68% of the company’s float of 29.16 million shares. Diluted TTM earnings per share is 0.68, and a MRQ book value per share value at 10.93 implies a Graham Number fair value $12.93. Based on the stock’s price at $9.46, this implies a potential upside of 36.7% from current levels.

By the Staff at Kapitall.com

Related Articles on STOCKS