No one knows the future of a company quite like insiders, the management and board of directors that run a firm. That’s why the regulated disclosure of stock purchases by these players is so important to other investors.
These disclosures are made regularly and poured over by the market. Not all mean what they appear. Many insiders acquire stock through the company’s compensation plan and some may feel pressure to buy shares after the stock has fallen.
There are purchases that preview a strong move in the stock, or at least a healthy future for the company from the people in the know. To find these, you have to look deeper into the company’s fundamentals and possible motivation for the insider purchase.
I’ve looked over the most recent purchases disclosed in the last month and found two companies with strong insider interest. Both of these companies pay strong yields over 6% in businesses that can stand the test of time.
Director Scott Shoen picked up 50,000 shares for $980,640 on August 29th. The board member may be betting on a 25% rebound to this year’s high around $25 or he might just want to pocket the generous 8.2% dividend yield. Shoen’s bet still pales in comparison to CEO Kraus with $21.4 million in the company, a full 1% of this $2.1 billion investment advisory firm.
Like many of the large banks and investment advisories, AllianceBernstein is still down almost 80% from its pre-financial crash price. Even after that loss, the shares have given investors a 13.4% annualized return over the last 20 years. The business is solid with 14% earnings growth in FY2012 over the prior year.
AllianceBernstein is still reeling from the financial crisis and it may take years for the stock to get back to its 2007 high. The investment advisory business is solid and there will always be a need for asset management. My price target for $30 could easily be eclipsed over the next couple of years though I would take profits at that point.
Lehigh Gas Partners (LGP)
Directors and management have been putting big money back into this $422 million motor fuel distributor with more than $1.3 million in purchases over the last month alone. Buyers include CEO Topper, the firm’s chief compliance officer and three independent directors. Director John Reilly bought 15,000 shares for $407,667 on August 30th. Insiders now own more than 16% of the company with institutional owners accounting for another 38% of total shares outstanding.
The company doesn’t have much in the way of trading history. Shares started trading last October and have jumped 45% on a dividend-adjusted basis. The company has increased its dividend twice and now pays a 6.8% yield.
Despite the short trading history, the company has been in business since 1992 and the industry is fairly mature. The shares may still be a little more volatile as the market finds its price on the company but the fundamentals are solid. The upside in share price isn’t as compelling with a target price of $32, just over 14% above the current price, but investors can stick around for the dividend yield and stable cash flows.
Don’t be fooled in thinking that all insider purchases are created equal. Make sure the company passes the rest of your screen for good fundamentals and a strong outlook, along with positive sentiment from insiders.