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Insiders see good things ahead for these companies. Here is a list of 4 stocks insiders are buying.
When management of a company reaches into its own pocket to purchase shares of its own company, it’s usually a pretty good sign that things are likely to improve at the company.
The logic is fairly simple: the people in the best position to know about how a company is performing are the people working there. They could allocate their capital in many different ways, but if they are buying their own company’s stock, they believe their rate of return is going to be higher than with other investments.
In some cases, with a struggling company, a very wealthy insider might purchase a modest block of stock to give an impression that the company isn’t in terrible shape. That instance is very rare, however, as few people like to throw good money after bad.
Here are four stocks with recent insider buys. These purchases, in my opinion, foretell that the company is in good shape, it’s going to get even better, and the returns are likely to outpace the market’s.
1. Blue Capital Reinsurance Holdings Ltd. (NYSE: BCRH)
Blue Capital Reinsurance Holdings Ltd. (NYSE: BCRH) has had some interesting activity over the past three months. This is a reinsurance company, meaning other insurance companies pay it to insure them. Reinsurers protect the insurers in the event of a catastrophe, and often have very high deductibles.
The CEO purchased about $249,000 worth of stock in March, and two directors bought in for a combined $130,000, at around $17 each. Even more interesting, another reinsurance firm purchased shares in Blue Capital. Montpelier Re Holdings (NYSE:MRH), already a 10% beneficial owner, purchased about $1.45 million worth of shares. You know your stock is undervalued when a competitor starts buying your stock. It also pays a high-yield of 6.9%.
2. General Finance Corp. (NYSE: GFN)
General Finance Corp. (NYSE: GFN) is an interesting little storage company. It leases and sells portable storage containers, portable container buildings, and freight containers. Somebody has to make those big containers that every shipper and transport company uses, after all. Executive Vice President Jeffrey Kluckman purchases $122,000 worth of stock in the past two weeks, at a price of $9.
General Finance is a modest little company, carrying no debt and about $8 million in cash, while generating increasing amounts of operational and free cash flow. Earnings are growing in a very modest fashion. This is just the type of little company that Wall Street doesn’t pay attention to, yet this insider seems to have a lot of faith in it.
3. Republic Services Inc. (NYSE: RSG)
Republic Services Inc. (NYSE: RSG) is, of course, the famous trash company. Trash is big business, in case you never watched The Sopranos, and there is no shortage of waste in America. Republic Services is a reliable cash flow generator with consistent levels of capex spending, resulting in consistent free cash flow in the $600-700 million annual range.
Its long-term EPS growth is pegged at 8%, making it a classic Peter Lynch stalwart. That may be why 26% owner Cascade Investments LLC continues to gobble up shares, adding $120 million worth of stock to its position in the past few weeks. Companies that generate reliable cash flow are very attractive in any economy.
4. Pulaski Financial Corp (NASDAQ: PULB)
Regional banks are also great places to look for values, because most people don’t really understand banking, or how regionals operate. Pulaski Financial Corp (NASDAQ: PULB) operates just 13 branches in St. Louis and loan production offices in six states. It’s a lean operation with management tending to its knitting, and is extremely solvent.
Just this past week, several directors purchased an aggregate $6.6 million worth of stock, expressing a big vote of confidence that times will be even better at this modest, little regional.
In the end, you don’t have to be a big wig to invest like one. All you need to do is follow what management and other insiders are doing and you might find yourself with some outsized rewards.
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