Insider Guide to Buying the Pullback, Part II

By Michael Brush
Exclusively for InvestorIdeas.com
August 09, 2007

Given the big volatility in a market that seems to change mood by the hour, it’s clear that investors are uncertain, to say the least. But insiders have little doubt about what to do.

Buy, buy, buy.

Not only are they buying in a bullish manner, but they are heavy shoppers at the market’s ground zero for turbulence: Financial stocks.

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It doesn’t matter whether you look at real estate investment trusts (REITs), insurers, banks with exposure to shaky housing markets, or companies that provide the kind of “risky” financing thought to be at the center of the current credit mess. Insiders crave financials.

Next on their shopping lists: utilities, energy and health care, says InsiderScore.com. But I’ve seen bullish buying in everything from Stamps.com (STMP) and Panera Bread (PNRA), which has already recovered a lot, to Aaron Rents (RNT), IMAX (IMAX) and Coca-Cola Enterprises (CCE), the bottler and distributor.

Indeed, insiders were way more bullish across the board in the week ending August 7, compared to the prior week when they had already taken a positive stance despite the market mayhem, says InsiderScore.com.

Here’s a look at some of their favorite stocks, starting with financials and REITs. Aside from American Express (AXP), insiders have shown a keen interest in REITs in the financials group. So these aren’t the most interesting businesses to talk about. But they’re beaten up badly, and down here they pay some big yields, so they are worth checking out.

Financials and REITs

American Express (AXP) Like most financials, this credit card company has been extremely volatile – trading between $66 and $56 in the past few weeks. The two Amex directors who scooped up $3.9 million worth of stock on Aug. 8 didn’t get the best price. They paid around $62.30. But the stock wasn’t trading too far above that Wednesday, so at least you can get in near where they did. Their buying is so big, it tells me American Express is a great stock to pick up here.

General Growth Properties (GGP) This REIT stands out for the sheer volume of insider buying. In the past six months, they’ve purchased $51 million worth of stock, according to InsiderScore.com. But they haven’t been great market timers. During that time frame, the stock has tanked to $50 from $65. They bought another $7.8 million worth in early August alone at $46-$47, so it may finally be time to join them. Down here, the shopping center REIT pays a dividend of 3.7%.

Equity One (EQY) This shopping center has also seen huge buying, or $43 million worth in the past month. It pays a 4.9% dividend.

American Capital Strategies (ACAS) This company is in the middle of what many investors perceive to be an emerging credit crunch because it provides debt financing for buyouts. It also invests directly in companies, often special situations and turnarounds. Insides bought $2.8 million worth for just under $38 in early August and the stock is now already at $43.

RAIT Investment Trust (RAS) This REIT provides debt financing to the real estate industry, including commercial mortgages, mezzanine loans, residential mortgage loans, and mortgaged-backed securities. That’s a lot of the stuff that investors are worried about these days, but RAIT insiders can’t be bothered. In early August, they purchased $1.7 million worth of stock on a sharp pullback from $30 to the $7-$8 range. The stock has already rebounded to over $9, but I’m pretty sure the volatility in this group isn’t over. So you’ll have plenty of opportunities to buy lower, or trade this stock. This is a bullish signal because $1.7 million is a lot of buying for a REIT that has a market cap of just $631 million. RAIT pays a dividend of 38% which is so high, it seems like it could be a candidate to get cut.

Capital Lease Funding (LSE) This REIT provides commercial real estate financing for properties to tenants with investment grade or near investment grade credit ratings. Insiders purchased $363,000 worth of stock recently in a pullback to $8.70 from $11.50. The REIT pays a dividend of 9.4%. It has a market cap of $426 million.

Franklin Street Properties (FSP) This REIT provides real estate financing and investment banking services. Insiders recently purchased $1.9 million worth of stock for about $15-$16. Franklin Street Properties pays a dividend yield of 7.9%.

American Mortgage Acceptance (AMC) This REIT is also positioned at ground zero for credit worries. It originates and buys mortgage loans, and it offers financing to developers of multifamily and commercial properties. In early August and late July, insiders purchased $295,000 worth of stock at this small, $63 million market cap REIT, which pays a yield of 12%.

Meadowbrook Insurance Group (MIG) I featured this small insurer in last week’s Insiders Corner (http://www.investorideas.com/insiderscorner/Articles/080207.asp), but it’s worth pointing out that insiders have continued buying since then.

Utilities, energy and health care

There’s also been notable insider buying recently in the tiny natural gas utility EnergySouth (ENSI), where insiders scooped up $1.9 million worth of stock. In energy, I’ve seen very bullish buying at NuStar Energy (NS), and Energy Transfer Equity (ETE), and decent buying at Hercules Offshore (HERO).

In healthcare, insiders bought $2.4 million worth of stock at the hospital company Health Management Associates (HMA) at around $7.30 a share on a sharp pullback from $11. There was also a notable $578,000 worth of buying at LCA-Vision (LCAV), a medical practitioners group which has pulled back sharply to $34 from $50.

Even homebuilder insiders are getting in on the act. They bought $175,000 worth of stock at Standard Pacific (SPF) on August 7. Insiders purchased just above $10 on a pull back from $23, and the stock has already rebounded to $12.

The bottom line : After Wednesday’s positive price action in the market, it’s a lot easier to buy these stocks than it was earlier in the week. I don’t think all the volatility is behind us yet, however. So it may pay to wait for another day – or another hour – when investors get panicky again and push stocks down, to make purchases.

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/. InvestorI deas.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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