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Gunner's Note: Today, James will update you on some recent insider buying activity. In case you're not familiar with it, tracking insider buying is one of the best ways to find great investment opportunities. James has carefully developed an insider trading system that, until recently, was only available to a tight-knit group of analysts. Read more in this special report.
The blue line is the ratio of insider purchases to sells. When the blue line rises, more insiders are buying stocks. And the red line is the S&P 500 index. As you can see, there is a very clear relationship between insider buying and the "price" of the overall market. Namely, when stocks are cheap, the insiders load up (a la 2001 and 2002). And when the market is expensive, insiders sell more than they buy. Today, we are in that expensive zone. More insiders are selling their stocks than buying. But there are some opportunities to be had for diligent investors. ********************************** Attention Stockwatchers: Dec. 31, 2006 Could Crush Your Investments One of the world's most famous market analysts just revealed his two favorite wealth fortress investments for protecting his -- and your -- money... Read the special report to find out more... ********************************** This morning, I ran a screen looking for the most significant insider purchases in the small-cap market since the beginning of August. I wanted to know all of the companies (with a market capitalization between $300 million-1.5 billion) that met the following criteria: 1) They had insider purchases of at least $100,000 or more All in all, 32 companies fit the bill. Equipped with this short list of stocks, I looked for some trends to see if I could narrow the list even further. So I noted every company's industry. Oftentimes, you'll find that the insiders have a tendency to load up on beaten-down industries that Wall Street hates. For those of you who are aware of these situations, you can find some interesting buying opportunities long before the mainstream press figures them out. Remember, the insiders aren't stupid people. They aren't going to throw their money away with the thought of losing it. They will only invest when they see some upside potential -- when their stock is so undervalued it almost has to rise. With that in mind, the three industries (in the small-cap sector) with the most insider buying this month are: regional banks, REITs and automotive. Of these three, the auto industry has been punished the most. In the last five days alone, automakers are down 1%, auto parts stores are down 4% and auto retailers are down 1.5%. Thus, it should be no surprise that insiders have spent $3.2 million buying shares of Pep Boys -- Manny, Moe & Jack (PBY:NYSE), $444,000 buying shares of Superior Industries Intl., Inc. (SUP:NYSE) and $129,590 buying shares of Lithia Motors, Inc. (LAD:NYSE). Pep Boys Pep Boys is the leader in the automotive aftermarket. It has 593 stores and more than 6,000 service bays around the country. The company specializes in the do-it-yourself, do-it-for-me and replacement tire markets. The last year has not been a good one for PBY. The company is in turnaround mode. And it is dealing with the effects of higher gas prices. Namely, the higher gas prices go, the less people drive. And the less people drive, the less demand there is for replacement auto parts. As a result, PBY's stock price plummeted from $16.50 in February to $9.50 this month. Of course, the million-dollar question is: How low can this stock go? The insiders don't think it will go much lower at all. Since last Thursday, several major directors at PBY have purchased over 291,000 shares at prices ranging from $10.89 to $11. All in all, they have spent over $3 million dollars on a stock no one else wants. What do they know that we don't? Only time will tell... ********************************** Forget Wall Street... And consistently see gains with undervalued small-cap stocks. Let James Boric show you the companies that could net you 30% gains year after year... ********************************** Superior Industries Intl. Superior Industries designs and manufactures aluminum road wheels for original equipment manufacturers like Ford, General Motors Corp., DaimlerChrysler, Audi, BMW, Isuzu, Jaguar, Land Rover, Mazda, MG Rover, Mitsubishi, Nissan, Subaru, Toyota and Volkswagen. Back in 2000, nearly 100% of Superior's sales came from Ford and GM. Given Ford and GM's recent problems (read: colossal meltdown), Superior recorded a loss in 2005, after netting $1.68 in earnings per share the year before. And its stock has fallen from $23 to $17. Over the last year, Superior has worked hard to diversify its customer base. According to its latest annual report, 73% of its business comes from Ford and GM today. And 11% of all sales now come from international OEMs. This is an improvement -- although it is still heavily exposed to the "big two." Despite these obvious risks, Superior's CEO just bought 25,000 of stock at $17.76 a pop. He spent a cool $444,000 -- or 68% of his annual salary -- on a stock that has been in a tailspin of late. If a few more insiders follow suit, you should pay attention. This could be a nice turnaround story. (Note: The CEO's name is Steven Borick. He is in no way related to me!) Lithia Motors From its website: "Lithia Motors, Inc. is one of the largest full-service new vehicle retailers in the United States, with 97 stores in 38 markets located in 13 states in the Western United States. Lithia offers 25 brands of new domestic and imported vehicles, all makes of used vehicles, service and parts and finance/insurance." With higher interest rates and record high fuel prices, Lithia's margins have taken it on the chin of late. In Q2 06, the auto retailer nailed down $846.4 million in sales and $11.6 in earnings, compared with Q2 2005 revenues of $750.8 million and $12.6 million in earnings. And company officials don't anticipate the market getting any better in Q3. Lithia lowered its guidance for the year from $2.32-2.40 EPS to $2.20-2.28. Let's assume the company nets only $2 in earnings per share for FY 06 -- lower than the current expectations. That means LAD is currently trading for 12.3 times earnings, about 0.2 times sales and just over 1 times book value. Maybe that's why the company's president, Dick Heimann, just slapped down $129,000 to buy shares for his own portfolio. Again, I wouldn't go out and buy this stock just yet. But if a few more insiders start buying LAD at today's prices, you may want to take a close look at it. A Final Thought... For decades and decades, it has been proven: Investors who follow the insiders beat the market indexes quite handily. That is exactly why I run an exclusive service that does nothing but track insider buying in the small-cap market. This week, I made two brand-new recommendations. Both have significant insider buying. And I expect both to make investors quite a bit of money in the next 12 months. Out of courtesy to my paid readers, I can't disclose the two stocks at this time. But if you decide to become a Small-Cap Insider member, you can get all my research on those two companies, as well as a dozen others. Find out more by clicking here. Good investing, |
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James Boric is the editor-in-chief of Small-Cap Strategy Report and he constantly scours the market for fundamentally sound small-cap companies with tons of growth potential... <click here for full bio> |
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