When a company announces a quarterly shortfall and lowers guidance, investors have been known to shoot first and ask questions later.
That lesson was painfully brought home to the insiders at Maxwell Technologies (Nasdaq: MXWL), who were initially stunned to see the company's stock tumble from about $20 in late winter to below $10 by late April. The quick reaction: On April 29, CEO Mark Rossi and director David Schramm acquired a total of 25,000 shares of company stock on the open market.
They should have saved their money.
In subsequent days, investors kept on selling this stock, pushing it down to roughly $6 by late July. Undeterred, those two insiders, along with two others, have continued to buy and with shares finally on the mend, they are looking a bit wiser.
I added this stock to my $100,000 Real-Money Portfolio roughly two months ago and thanks in part to that additional insider buying, am sitting on a tidy 35% gain. (That has helped push the whole portfolio into the black for the year, for which I say "Amen.")
Where to from here? I'm convinced this steadfast commitment from these insiders will really pay off. That's because Maxwell looks poised to resume its impressive growth trajectory -- once it can get past a few more difficult year-over-year comparisons. The company is benefiting from the long-term adoption of its innovative ultra-capacitors, and you can expect to see additional new customers sign up for these products -- especially in the auto industry -- in the months to come.
Yet Maxwell is not alone when it comes to the intestinal fortitude of insiders. Calgon Carbon (NYSE: CCC) is another portfolio holding that is seeing steady insider buying. Insiders began purchasing shares in late August at $13.39 a share, and they've kept buying as shares moved up above $14. To read why I see considerable upside for this environmental-services company, click here.
Here are two other stocks that are the beneficiary of repeated insider buying.
1. YRC Worldwide (Nasdaq: YRCW)
This beleaguered trucking firm had to conduct a 44-for-1 reverse stock split last December just to keep its listing on Nasdaq. Shares eventually slid below $5 this past spring, leading some to wonder if even that reverse split wasn't enough to stem the company's troubles.
Insiders knew better. They began purchasing company stock in the $5.20 to $5.40 range in early August and have been buying at even higher prices. That translates to $200,000 from five different insiders.
Those moves are paying off as shares of YRC are now moving up again, recently approaching $7. YRC's management spoke at a recent Deutsche Bank conference and discussed efforts to turn around what had been a broken business. A steady drop in expenses, led by a reworked union contract was a key part of the presentation, which could explain this stock's recent rebound.
2. Dole Food Co. (Nasdaq: DOLE)
David Murdock has a long history with this fruit and real estate concern. He bought the company out of bankruptcy in 1985, parlayed that investment into an estimated $3 billion net worth, took the company private in 2003 and went the IPO route again in 2009. That move was looking like a dud earlier this year as shares drifted down toward the $8 mark, the lowest levels seen in this round as a public company.
Murdock was not deterred. He began snapping up shares in July, and has kept doing so ever since. In fact, from late July through mid-August, he was a buyer in the open market almost every day. In all, he's bought more than $45 million in company stock during the past six weeks.
What is Murdock up to? Well, he's been working with Dole's board to find ways to unlock shareholder value, and presumably believes investors don't fully appreciate the steps yet to come. Among the company's options: an outright sale of its Packaged Food business, a sale of Dole's Asian Fresh Fruit business, or perhaps other assets that will be put up for sale. The company has said it would announce its plans by the end of the year. The fact that the bulk of Murdock's buying has come in the $12.50 range, not far from current levels, tells you that he spots ample more upside.
In the past few days, Dole has confirmed that talks have begun for the sale of various divisions. Shares have moved up to the $14. Merrill Lynch predicts a deal will be consummated and figures Dole could trade up to $17 a share, after any partial asset sales take place.
Risks to Consider: Insiders have keen insights into their businesses but have a poor track record of timing the stock market. So the recent gains for these stocks, even though they portend better days ahead, could still be disgorged in the near-term, if the markets pullback.
Action to Take --> "Buying on the way up" is a phrase that analysts who follow insiders like to use. If insiders keep buying company stock, even after it starts to rise, then the chances are good that even more upside lies ahead.