Five Ways to Bet with Insiders on Better Economic Growth Ahead

By Michael Brush
Exclusively for InvestorIdeas.com
August 03, 2006

Insiders continued to step up and buy shares at economically-sensitive companies last week – companies in everything from building materials and chemicals, to energy, transport and technology.

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This bolsters the case that bears have it wrong when they say the economy is headed for sharp slowdown or even recession.

In the past week, insiders have been buying in a big way at companies like Dow Chemical (DOW), Titanium Metals (TIE), Black & Decker (BDK), Sealed Air (SEE), and JB Hunt Transport Services (JBHT) – all businesses that would be destined to under perform if the economy was about turn sour.

It probably won’t because of the following factors.

• The consumer should stay strong because jobs growth is picking up where mortgage refinance is leaving off.
• Yes, the Fed has hiked rates 17 times but the ten-year bond yields just 5%, and it generally has to go above 6% to hurt stocks.
• Inflation is back, but it is likely to be contained because of downward pressure on prices from low-cost producing countries like China and India.
• The U.S. federal deficit stands above $350 billion which will continue to rev up the economy, as will strong economies overseas plus the weak dollar which increases foreign demand for U.S. goods.

Here’s a look at five economically-sensitive companies that have been hit hard – creating big sell offs in which insiders are scooping up shares.

Black & Decker (BDK)

Since early May shares of this power tool maker have fallen to $70 from $94. Black & Decker shares are down because the company recently reported weakness in sales. Investors also worry that a slow down in mortgage refinancing will put the kibosh on home remodeling.

Insiders disagree. They were selling back there above $90, but now one is buying. A director recently bought $500,000 worth of stock for $71.45.

Black & Decker sales may hang in there because job growth is picking up where mortgage refinancing is leaving off. So home remodeling projects won’t be beyond reach. And home ownership is at all-time highs. Home owners are more likely than renters to do jobs around the house, points out Morningstar analyst Matthew Warren.

Black & Decker is also launching a new line of cordless tools powered by a lithium ion battery, and it can outspend rivals on marketing and research and development, says the analyst. He likes the stock under $69.40.

Goodman Global (GGL)

A building materials company that recently came out in an initial public offering (IPO) at around $20, Goodman Global is now a “busted IPO,” trading down around $12.50. Goodman Global is the second largest domestic manufacturer of heating, ventilation and air conditioning products for residential and light commercial use.

Down here, insiders are on an outright buying spree, purchasing nearly $2 million in stock for $12.20 to $12.99. Nearly everyone has gotten in on the act, from the chief executive and finance chief, to the heads of marketing, legal, human resources, distribution, logistics and operations. This kind of cluster buying is an extra-bullish sign.

Insiders seem to think concerns about a slowdown in the building sector are overblown. Another potential plus: Goodman Global makes less expensive versions of a range of products that meet higher minimum efficiency standards, recently mandated by the federal government.

CDI (CDI)

Shares of the staffing company CDI recently tanked big time when the company reported quarterly profits below expectations. It also disclosed an investigation into anti-competitive practices in the UK. The stock has fallen to $20 from $28 in the disaster.

Since it has tanked, insiders have purchased nearly $400,000 worth of stock for around $19.50. CDI is a relatively small player in professional staffing. But continued tight labor markets should help it recover. CDI gets about half its revenue from temporary staffing services, and the other half comes from project outsourcing.

Sealed Air (SEE)

Sealed Air packaging products include films used to wrap meat and vegetables, and protective packaging for retail goods. The company also invented Bubble Wrap, which shareholders could have used this year to cushion the fall as shares plunged to $48 from above $59.

Sealed Air is getting hurt by higher plastic resin costs. It has also lost some customers as it has raised prices to try to offset those higher costs. Customers have also been hurt by beef export barriers put up because of concerns about mad-cow disease.

But the company has launched a restructuring plan which includes moving production to China to save on costs. Longer term, the company should benefit from increased food production in developing countries and higher Internet sales – which call for more packaging. Insiders seem to agree. Since July 27 during the recent weakness, they’ve purchased over $550,000 worth of stock for around $47.

Secure Computing (SCUR)

Shares of Secure Computing, which sells computer firewalls, recently traded for $6, though the stock topped $14 earlier this year. Deals slipped in the most recent quarter. And it is taking longer to make sales, partly because of delays in closing the acquisition of another Internet security company called CyberGuard. Secure Computing also recently lost partnerships with Network Appliance (NTAP) and Blue Coat Systems (BCSI), companies that are also in the security space.

But many U.S. companies have strong balance sheets and lots of cash – cash they may spend to upgrade technology products, like this company’s security offerings. Chief executive John McNulty must see better times ahead because he recently purchased $300,000 worth of stock for $5.61. Secure Computing was also recently upgraded by Matrix Investment Research, an independent research shop with a decent track record.

The bottom line: I think we still have to have faith that the economy isn’t slowing down as much as people fear. Investors had the same concerns last October as fourth quarter growth slowed considerably. But then the first quarter was fine. We may see a repeat – since the conditions are in place for continued healthy growth. If so, cyclical stocks like the ones above being purchased by insiders will be good ones to own. So will A. Schulman (SHLM), a plastics company where insiders were buying again last week (http://www.homelanddefensestocks.com/insiderscorner/Articles/052506.asp).

Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com  Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.

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