January 27th, 2014
by Tim Melvin, Money Morning
Wise investors covet insider stocks to buy because they realize something very important.
It's something mutual fund legend Peter Lynch once described very succinctly:
"There are many reasons why insiders sell, but only one reason insiders buy."
That reason being, of course, that insiders know something about their company that they are certain will drive the stock price higher.
And research bears this out.
According to Nejat Seyhun, a professor and researcher in the field of insider trading at the University of Michigan, whenever you have insider buying, the stock tends to outperform the total market by 8.9% over the next 12 months.
When you have an indicator that consistent and that profitable, it's crazy not to take advantage of it.
Insider Stocks to Buy: LAYN, CLMS, OPK
So far in 2014 we have seen some interesting activity by corporate insiders. Early on, the sellers have the edge, but there has been no cluster insider selling.
That makes the significant insider buying by officers and directors even more interesting, however.
Just take a look at these three insider stocks to buy now:
Insider Stock to Buy No. 1: Layne Christensen Co. (Nasdaq: LAYN): Layne is a water management, construction, and drilling service business in North America. The company's customer base includes government agencies, utilities, industrial and mining companies, engineering firms, heavy civil construction contractors, oil and gas companies, power companies, and agribusiness.
Chairman of the Board David Brown spent more than $330,000 to pick up an additional 20,000 shares in the first week of the year.
The move raises eyebrows because LAYN has been hit hard in the past year. Shares have fallen by more than 20% over the past year, and the company has fallen short of Wall Street estimates four quarters in a row. Brown apparently sees a rebound ahead.
Insider Stock to Buy No. 2: Calamos Asset Management Inc. (Nasdaq: CLMS): CAM is a holding company for an investment advisory service, Calamos Investments.
John Calamos was once again a buyer of shares in his company as we started the year. Records show Calamos was been a consistent buyer of shares last year, and he apparently intends to continue doing so in 2014.
Calamos spent an additional $140,000 to buy stock in the first week of the year. The company has been struggling with outflows from several of their funds in the past year, but the stock is relatively cheap at just under $12 and generates a nice dividend yield of 4.3%.
At the current price, CLMS trades at just 1.1 times book value. The company is also buying back shares in the open market; it repurchased more than 900,000 shares of stock last year. With both the top executive and the company itself buying shares in the open market, Calamos looks like an undervalued stock with the potential for strong returns this year.
Insider Stock to Buy No. 3: Opko Health Inc. (NYSE: OPK): Opko is a pharmaceutical and diagnostics company working to develop molecular diagnostics tests to identify molecules or immuno-biomarkers for Alzheimer's disease, non-small-cell lung cancer, and pancreatic cancer. They also operate OURLab, a full-service medical laboratory specializing in urologic pathology.
Like John Calamos, the chief executive officer of Opko, Dr. Phillip Frost, is another repeat buyer of his company's shares. He spent another $416,000 to increase his holdings in the first 10 days of the year. Dr. Forst is not a man to bet against as he has already developed and sold two biotech and pharmaceutical companies (Key Pharmaceuticals and Ivax) for large profits in his career.
Some other insider stocks to buy include Aircastle Limited (NYSE: AYR), Accelrys Inc. (Nasdaq: ACCL), Amtech Systems Inc. (Nasdaq: ASYS), and Middleburg Financial Corp. (Nasdaq: MBRG), which all saw beneficial owners of 10% or more of the company increase their stake to start the New Year. While beneficial owner buying is not as predictive as officers and directors making open-market purchases, it is worth paying attention when large outside shareholders increase their positions.
Insider stocks to buy are just one way to look for promising investing prospects. Some major events, such as the recent Consumer Electronics Show (CES), can also point the way to stocks poised for massive gains. Here are the best tech stock ideas based on what we saw at CES...