"Smart Money" Insiders Are Bullish Again

Robert Maltbie |

At Singular Research, one strategy that we have been developing is based around focusing on insider buying with the most conviction and most impact for investors to maximize their results. Given that many of these companies have not exhibited a consistent uptrend yet in earnings growth, we depend on savvy insiders to help make the calls for us.

Singular's proprietary methodology is developed with Sabrient Systems, one of the top quant shops in the U.S., and uses an algorithmic index that scores insider buying enthusiasm and the number of insider open-market purchases, as well as the improving sentiment (specifically earnings upgrades) among the Wall Street analysts who follow the company. The premise is that there is conviction confirmed by breadth of insiders and capital invested, and when combined with the more objective eye of the analysts, we get a good read on which companies have a favorable near-term outlook.

Click here to receive the 'Smart Insider Trading Screens' report from Robert Maltbie at Singular Research.

Singular Research Smart Insiders

INSIDERS ARE BULLISH AGAIN

Here are the top scores for the month of December:

Company

Sector

Price

EPS

P/FCF

P/S

P/B

P/E

Value Ratio

Buyers

Sentiment

American International Group, Inc. (AIG) Financials

20.07

NA

NA

0.5

0.5

1.3

88

95

93

Accuride Corp. (ACW) Consumer Goods Services

5.59

NA

NA

0.4

0.9

2.9

75

97

86

Commercial Metals Company (CMC) Basic Materials

11.45

NA

NA

0.2

1.1

NA

53

95

92

Kronos Worldwide Inc. (KRO) Basic Materials

18.05

224.2

11.8

1

2.4

7.6

57

97

80

Old Republic International Corp. (ORI) Financials

7.29

NA

NA

0.4

0.5

NA

57

99

75

Green Mountain Coffee Roasters Inc. (GMCR) Consumer Goods Services

49.66

137.3

NA

2.9

4

37.9

21

95

93

Thompson Creek Metals Co., Inc. (TC) Basic Materials

5.93

711.4

NA

1.4

0.6

4.3

70

84

93

Olympic Steel Inc. (ZEUS) Basic Materials

19.26

155.1

NA

0.2

0.7

9.3

76

79

93

Whirlpool Corp. (WHR) Consumer Goods Services

46.05

24.4

NA

0.2

0.8

10.1

81

90

72

Enbridge Energy Partners LP (EEP) Energy

30.1

14.5

NA

0.7

1.9

30.3

43

95

99

Old Republic International Corp. (ORI)

ORI engages in underwriting property and liability, mortgage guaranty, title and life, and disability insurance. The management conducts the business with a primary focus on achieving long-term underwriting results, risk management discipline, asset diversification and quality, and the maintenance of financial soundness in support of its long-term obligations to insurance beneficiaries. The company’s operating results and financial condition have turned positive since the 2008 financial crisis. Although the Mortgage Guaranty line was negatively impacted, the General Insurance and Title Insurance segments are showing more positive results in recent quarters. Particularly in the Title Insurance segment, the company posted an impressive profit growth of 68% YOY in the most recent quarter, mainly due to its growth in market share. In addition, ORI has adequate capitals to serve the current risk profile of the book of business, new business growth, and the continuation of the dividend streams. The company has $600 million cash cushion and access to additional funding. It also ranks as one of the highest dividend paying stocks with its dividend yield of 7.70%. The performance of ORI over the past two weeks has significantly outperformed the broader market. Insiders are extremely bullish on ORI. The CEO, CFO and several other officers have purchased over 100,000 shares of ORI during the past month.

Accuride Corporation (ACW)

ACW is the largest manufacturers and suppliers of commercial vehicle components in the United States, Canada, and Mexico. Accuride’s core strength creates a significant barrier to entry. The company holds leading market positions in its major product categories and serves a diversified customer base including virtually all of the leading commercial vehicle OEMs. In 2011, Accuride has completed its expansion of aluminum wheel production capacity in Mexico to serve the growing aluminum wheel market. Sales and EBITDA continue to improve from the previous period comparisons, reflecting rising industry demand for aluminum wheels. The outlook for the North American commercial vehicle industry remains positive. The healthy trucker profitability, aging equipment and strong equipment replacement demand, and potential economic strength are expected to drive demand for Accuride’s products. Amid the challenging market condition in the past quarters, the stock of ACW has lost about 60% of its value YTD and the management has just lowered its earnings outlook for the year 2011. Yet, the recent operating miss was likely short-term. The management has initiated turnaround plans which are expected to yield marked improvement in the second half of 2012. ACW offers excellent value to investors and is selling at just 2.9 times earnings, 0.4 times sales and 0.9 times book value. Over 20,000 shares of ACW have been purchased by a number of insiders at $6.04 ~ $6.87 per share over the past three months.

Thompson Creek Metals Company, Inc. (TC)

Thomas Creek Metals is one of the world's largest primary molybdenum mining producers and has vertically integrated mining, milling, processing and marketing operations. TC has a diversified portfolio including molybdenum, gold, silver, and copper that allow TC to weather commodity market volatility. In particular, molybdenum saw stable demand and price even during the 2008 crisis. Demand and price of molybdenum is expected to boost significantly due to its strategic significance and scarcity, leading to a higher profitability and valuation of TC. For the nine months ended September 30, 2011, TC’s revenue was up 26.1% to $552.4 million, cash flow from operations was up 44.4% to $181.6 million. In addition, TC has outstanding financial strength: the highest ROE in the industry and the lowest debt to equity ratio. Despite its recent turmoil with its acquisition of Terrane Metals, the company owns extremely valuable assets which have driven its profitability for years and its long-term operational improvement plans for the business are firmly on track. The recent drop of stock was vastly due to an overreacted market. TC shows huge upside potential in the share price, given its P/E of 4.3x, a P/S of 1.4x and a P/B of 0.6x. Analysts have adjusted their EPS estimates in favor of TC. Strong insider buying reveals a buy signal. Three insiders have bought more than 50,000 shares recently.

Enbridge Energy Partners, L.P. (EEP)

This MLP owns and operates crude oil, liquid petroleum and natural gas transportation and storage assets in the United States. The company operates more than 6,200 miles of crude oil and liquid petroleum transportation, 30 million barrels of crude oil storage assets, 11,300 miles of natural gas gathering and transportation lines, 10 natural gas treating and 26 natural gas processing facilities with an aggregate capacity of 3,450 million cubic feet per day. The business continues to build on the positive momentum of energy resources. In 2011, EEP has posted ROE of 10.23% and a 3-year total return of 188%. Adjusted EBITDA of $298.7 million and net income of $127 million was 6% and 15% higher than the results posted in the same quarter last year. Its growth potential is enormous given that EEP’s pipelines transport 60% of Canadian oil sands and 45% of Bakken crude. During the recent quarters, EEP has made excellent progress on crude oil and natural gas growth strategies. To meet the coming demand, EEP invests large amounts in new promising projects and is expanding pipelines which transport oil from Canada to major oil hubs in the US. Several on-going projects are expected to increase the company’s transport capacity by 2013, capitalizing from the oil production boom. Its 7% dividend yield, among the highest in the industry, is enticing to many income investors. Its payouts to shareholders have been incredibly consistent. Analysts are bullish on the stock in terms of their recent EPS revisions. EEP had insider purchases of over $30,000 during the past month.

Singular/Sabrient's “Smart Insiders” Track Record 2001-2009

From July 3, 2000 to Jan. 4, 2010, the Singular/Sabrient "Smart Insiders" strategy has produced an annualized return of 11.5 percent.

Singular Sabrient 2000-2010

Back test

Top

Entry date

20000703

End date

20100104

Annualized return

11.5

Annualized volatility

27.5

Sharpe ratio vs. Avg

0.45

Annualized differential return

6.7

Notes: on Smart Insiders Screen:

  • Identifies stocks that are actively being accumulated by insiders and reflecting positive sentiment among the Wall Street analysts who follow the company.
  • Insider buying is based on their SEC Form 4 public filings, with higher scores indicating greater conviction among insiders in adding “significantly” to their holdings.
  • Wall Street analysts’ consensus sentiment looks for the percentage of analysts who have been revising upward on earnings projections and the magnitude of those projections.
  • On average since mid-2004, stocks on list achieved 16% gain within 3 months.
  • On average since 1/1/2009, stocks on list achieved 26% gain with 3 months.

Disclosures: To read Singular Research’s important disclosures, click here.

Singular Research

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ACW Accuride Corporation n/a n/a n/a 0
FULL Full Circle Capital Corporation n/a n/a n/a 0
XMF.PR.B:CA M Split Corp. $5.00 Class I Preferred Shares 5.28 0.02 0.38 2,300
CMC Commercial Metals Company 24.34 0.31 1.29 1,621,635
ORI Old Republic International Corporation 18.25 0.19 1.05 1,579,766
GLAD Gladstone Capital Corporation 8.47 0.01 0.12 171,974
GMCR Keurig Green Mountain Inc n/a n/a n/a 0
WHR Whirlpool Corporation 173.80 4.40 2.60 1,005,621
KRO Kronos Worldwide Inc 12.03 -0.14 -1.15 593,247
TC TC n/a n/a n/a 0
GAIN Gladstone Investment Corporation 8.19 0.05 0.61 127,802
AIG American International Group Inc. New 64.92 0.72 1.12 5,113,147
EEP Enbridge Energy L.P. Class A 23.49 0.19 0.82 880,238
PSEC Prospect Capital Corporation 8.10 0.01 0.12 1,375,029
MAIN Main Street Capital Corporation 36.43 0.06 0.16 215,760

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