Officers and directors at companies (known as "insiders") tend to receive lavish pay packages, and rarely deserve much pity. But the past few weeks have been downright miserable for them. Those insiders that acquired shares on the open market during the recent post-earnings season window have lost tons of money. If they had just waited a few weeks longer, they could have bought a lot more shares with the same amount of funds.
Well, their loss is our gain. We can now buy shares of companies where insiders only recently paid much higher prices. I looked at dozens of such examples, and found five that stand out for especially strong appeal. (All insider data supplied by InsiderInsights.com).
Back in June, a cluster of three insiders acquired $1.5 million in stock, at an average price of $22.30 a share. They may have been attracted to the fact that shares traded above $40 last summer. But they acted too soon, as shares have since plunged to just $17 in this market rout.
This youth-focused retailer has been struggling for growth in recent quarters. But an improving employment picture, especially for people aged 16-25, portends well for a resumption in growth for the company.
2. Prospect Capital (Nasdaq: PSEC)
Insiders at this business development company (BDC) must be kicking themselves. They haven't sold a single share in several years, and in that time, have been repeated buyers. Yet they've been buying all the way down, as the shares have moved ever lower.
Most recently, three different insiders acquired a combined $3.5 million shares in June. The steady downdraft has pushed this BDC's dividend yield up to 13%. My colleague Nathan Slaughter has held this BDC in his High-Yield Investing portfolio for around 16 months.
Last summer, he wrote that "Prospect selectively targets borrowers with steady recurring revenues and cash flows and strong asset coverage. And it adds another layer of safety by inserting protective clauses into its contracts that shield against prepayments and falling interest rates." The ongoing purchases by insiders confirms that many investors are mistakenly viewing this high-yielder as being too risky.
3. Land's End (Nasdaq: LE)
This retailer has also had a tough year: shares have slid from around $55 at the start of the year to a recent $21. Insiders had the misfortune of acquiring shares in the mid-$40's last winter, and then became very aggressive purchasers as shares slid into the mid $30's and then again in the mid $20's.
Frankly, this stock has been somewhat of an orphan since it was spun off from Sears Holdings (Nasdaq: SHLD) in April 2014. Since then, management has made very little effort to court investors. There are no quarterly conference calls, and few analysts covering the firm. That's unusual for a retailer with $1.4 billion in annual sales.
To be sure, this brand suffered from benign neglect while being mismanaged by Sears. This recent article from Bloomberg News highlights the company's goals in its turnaround efforts. The Land's End brand still carries a great deal of resonance among older buyers, and the retailer is looking to bring in younger buyers as well.
4. Basic Energy Services (NYSE: BAS)
There are so many moving parts to the unfolding energy driller crisis that it's hard to know where to begin. Cheap oil is impacting almost every company in the industry, with the damage at some firms notably worse than at others.
Insiders at this firm, which provides a range of services and equipment to drillers, have tried to signal bullish support. Steven Webster, a company officer, bought $1 million shares of BAS in June (at an average purchase price of around $7.25). That was well below the 52-week high of $24.73). Shares continue to slide, and another cluster of insiders just bought shares at around $4.50 apiece. They're hoping they've timed the bottom of the sell-off.
5. Belden (NYSE: BDC)
This provider of telecom and broadcasting signal equipment was riding high in April, with shares approaching $100. But since then, a slowdown in orders has led management to trim forward profit guidance by around 20%. Shares have plunged more than 40% from their peak, to a recent $52. As that slide was taking place, insiders bought clusters of shares in the mid-$80's and more recently around the $60 mark.
Shares of Belden now look to be oversold, trading for less than 10 times projected 2016 EPS of around $5.50
Other notable insider purchases that are now notably underwater include:
Biogen (Nasdaq: BIIB)
Enterprise Product Partners (NYSE: EPD)
CONSOL Energy (NYSE: CNX)
Risks to Consider: Insiders have a very weak track record in terms of market timing, as these transactions highlight. That also means shares have not necessarily hit bottom. Indeed, insider buying is rarely correlated with technical levels of support.
Action to Take: The most important issue regarding insider buying is the clear management signal that recent business conditions are not nearly as weak as current share price drops suggest. Over the long-term, strong clusters of buying tend to reap above-average returns, according to various studies.
Editor's Note: Recently, High-Yield Investing's Nathan Slaughter uncovered eight elite stocks that returned more than 300% on average in the past decade; more than 3 times the S&P's total return. But the best news -- their upside is only just beginning. Get the names of each of these stocks by accessing the new report here.