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Tickers in this Article: BBY, MGM, JNJ, GRMN, RCL
There are many metrics that an investor should consider prior to making an investment. The old stanbys are: expected earnings, cash flow, and current multiples, but one metric that is often overlooked is insider activity, specifically insider buying.

In this article, I will highlight five companies with heavy insider activity that investors may want to research further. I will then focus on one company worthy of special attention. For this week, that will be Best Buy (NYSE:BBY).

Why Insiders Matter
Insider buying is important because executives who invest their own money in the company they work for do so because they expect to make money. There can be many reasons to sell a stock, but people don't usually buy unless they are expecting to see a return on this investment. (To learn more, read Keeping An Eye On The Activities Of Insiders And Institutions.)

Insider buying is not a guarantee that the share price of the company will increase, however. Insiders may have a much longer time horizon than regular investors, and sometimes insiders just get it wrong. That's why it's best to classify insider buying as a part of the entire investment decision making process.

Insider Candidates
With all of that in mind, I searched for companies with recent, and noteworthy insider buying activity reports. I define noteworthy in this instance as meaning that there was more than one purchase transaction reported (direct/indirect) within the past 12 weeks. I got my data from Yahoo Finance. Here are five big-name companies that caught my eye.

5 Stocks With Insider Activity
Company
6 Month
Net Insider
Purchases/(Sales)*

Market Cap*
Best Buy
(NYSE:BBY)
1,796,810
shares
.2 B
Garmin
(Nasdaq:GRMN)
33,279
shares
.3 B
Johnson & Johnson
(NYSE:JNJ)
(168,365)
shares
8.0 B
MGM Mirage
(NYSE:MGM)
(22,243)
shares
.0 B
Royal Caribbean
(NYSE:RCL)
15,000
shares
.9 B
*Data from end of day December 2, 2008


Insiders Snatch Up Best Buy
Consumer electronics retailers are having a tough time due to the economic slowdown, as evidence, consider the Circuit City bankruptcy filing. However, longer-term I think the sector will fare just fine. My long-haul favorite in this group right now is Best Buy, a Minnesota-based company sporting more than 900 domestic stores.

It is important to understand that things are indeed tough out there. Consumers aren't spending like drunken sailors anymore, and with multiple retailers ranging from Target (NYSE:TGT) to Wal-Mart (NYSE:WMT) to the major electronics chains offering great holiday deals on things like televisions, I think that the competition for foot traffic remains stiff. On November 12, Best Buy stayed true to this outlook, and offered up fiscal year guidance of approximately $2.30-2.90 a share, the previous range was $3.25-3.40 per share. However, for a stock that currently trades under $20 a share, its new range still seems intriguing.

Some of the most recent purchases include:

  • A purchase of 20,000 shares by Allen Lenzmeier, an officer, at $18.97.
  • A purchase of 5,000 shares by Elliot Kaplan, an officer, at $22.43.
  • A purchase of 1,800 shares by Robert Willett, an officer, at $27.60.
Again there's no guarantee that Best Buy will have a great holiday season or that its stock price will rise at any point. However, the insider activity turns my head.

Bottom Line
Insiders at publicly traded companies may sell shares of stock for a host of reasons, but few people, insiders or not, purchase stock unless they think it has a shot of making money at some point down the road. Coattailing those "in the know" can pay off, but investors should always remember that company insiders could have a longer time horizon, or worse, they could simply be wrong.

To learn more on the strategies of coat tailing the insiders, be sure to read our related article Delving Into Insider Investments.

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