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Make Your Day with this Insider Signal on Steroids
By Michael Brush
January 19, 2006
In a highly unusual twist for an insider, the top dog at a teen retailer
called Fossil (FOSL) recently signed up for a kind of pre-approved automatic
trading program that allows executives to act even when they have insider
information.
What’s odd about the move at Fossil is that the program is almost always
used by insiders to sell stock like a robot no matter what – whether they
know bad news is just around the corner or not.
In the case of Fossil, however, chief executive Kosta Kartsotis has signed
up for the plan to buy his company’s stock. So far, Kartsotis has wasted
little time snapping up a huge piece of Fossil stock.
Since December 16 he has purchased $5.5 million worth of stock in the $20 to
$22.11 range, according to Thomson Financial. That alone would be a solid
signal at a small company like this. Mix in the pre-programmed buying plan,
and I’d call this an insider buy signal on steroids.
Fossil
What is Fossil and why might its shares continue higher? The company is
probably best known for its watches. But Fossil also offers lines of leather
goods, belts, handbags and apparel.
Wall Street analysts are generally gloomy about the company – but that’s
actually good when insiders are so bullish. It means more people are on the
sidelines waiting for the analyst cue to buy shares – and drive your shares
higher if you own. Analysts worry about a big contraction in watch sales in
the all-important U.S. market, high inventories, and lowered guidance for
the last quarter.
Plus Fossil has committed the cardinal sin of retail. It did so well a year
ago that now it faces tough “comps,” making today’s slowdown look even worse
by comparison. But guess what. Once a retailer cycles through a year of
missing challenging comps, it’s up against weaker comps once again. Voila --
suddenly the pressure is off and it can look good, even if business hasn’t
returned to old levels.
But Fossil has other things going for it other than this distorted piece of
psychology among retail investors. And as always I’ll take the insider
signal over what the Wall Street analysts say, any day. Here’s what may
bring Fossil up out of the bed rock of the Wall Street avoid list.
* Sure, U.S. watch sales were weak. But international sales – which make up
about 44% of sales – were solid in the most recent quarter. They rose 12.7%.
European sales increased 21%. Plus accessory sales in the U.S. were strong,
with sales up 21% in handbags, women’s belts, small leather goods and
sunglasses. This tells me that Fossil hasn’t lost its touch – and a recent shakeup of design teams in Dallas and Hong Kong might be what it takes to
reinvigorate areas where Fossil is weak.
* Fossil is also rolling out new brands like Adidas. It’s planning to expand
its luxury “Michelle” brand of watches into a lifestyle brand including
jewelry and handbags. Fossil’s Zodiac brand is gaining momentum in Europe
and the U.S.
* The company is also moving forward on a partnership with Wal-Mart, after a
successful test phase.
The tricky thing about retail is that you always have to be one step ahead
of the market – creating styles that people will like at some point in the
future even if you have no clue whether they will work as you place the
orders for next season.
But given the chief executive’s pre-programmed buying plan and the huge $5.5
million worth of stock he has purchased so far, I’d say there’s an internal
confidence level at Fossil that’s compelling.
The bottom line: What’s more, the board itself just authorized a new 3.5
million share repurchase plan, while the company has about 700,000 shares
left on the old one. With retail, the insider signal can lead you astray, as
we found with Gander Mountain (GMTN) which stopped out with a 20% loss. But
this one is so strong I’d buy shares right here.
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:
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InvestorIdeas is not affiliated or compensated by the companies mentioned in
this article.
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