When an insider sells shares of their company, I usually find myself wondering why. I question whether the sale means something as simple as having to pay a bill for their kid's college, or whether it's to take some profits off the table. It also raises the issue of whether the insider knows that something bad might happen. Conversely, when an insider buys shares, I also find myself wondering why. I usually come to the conclusion that few would pony up money for a stock unless they thought that they would be making money at some point down the road.
With all of this in mind, I sometimes like to screen for companies with recent insider buying, as I think the companies are worth further research. After screening, here are some of the companies that I found:
|Company||Market Cap (millions)||# Of Insider Buyers (12 Weeks)|
|American Express (NYSE:AXP)||$12.5 billion||3|
|Caterpillar (NYSE:CAT)||$14.6 billion||6|
|Chico\'s FAS(NYSE:CHS)||$750 million||2|
|Gannett (NYSE:GCI)||$468 million||5|
|Royal Caribbean (NYSE:RCL)||$1.26 billion||6|
|As of market close March 6, 2009|
With six insider buys in the last 12 weeks, Royal Caribbean is a company that warrants further investigation.
In an effort to save money, people are indulging in fewer vacations and more staycations. However, I don't think that all companies in the travel business, or companies that offer exotic vacations, should be written off. In fact, I am keeping Royal Caribbean, the Miami-based cruise line, on my radar screen because I believe it has a few things going for it.
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For starters, it's in the cruise business. I may have said this in the past, but I think it bears repeating: I think that cruises are an economical way to travel. After all, meals and entertainment are typically included in the ticket price. Plus, I can't think of a cheaper way to travel to a host of Caribbean islands on a single trip.
Next, the company operates out of numerous ports throughout the U.S., ranging from Cape Liberty, New Jersey to San Diego, to Galveston, Texas to, of course, Florida. The numerous locations mean that it's accessible to a lot of would-be travelers. In addition, this is not taking RCL's international ports into account, which also provide huge potential.
Weathering the Storm
In addition to its accessibility, RCL is expected to have earnings per share (EPS) of $1.08 in 2009 and $1.03 per share in 2010. Though I'd rather see the EPS heading higher, given that the stock trades at just under $6, it does draw my attention. The fact that their EPS is as high as it is makes me wonder what the company might earn under more normal operating conditions. (Learn how to determine the accuracy of EPS by reading How To Evaluate The Quality Of EPS.)
The final piece of promising information about RCL is that insiders have been buying the stock. Data indicates that there have been six transactions. I took a gander at the insider data, and the transactions that stood out to me most were two purchases made by an officer, Barbier Chico. The data indicates that Chico bought 14,500 shares at $6.44 and 10,500 shares at $6, both in late February. That, for me, is a pretty big vote of confidence.
RCL still has some stiff competition. Thanks to the slowing economy, I think that Carnival (NYSE:CCL) cruise line is likely to be fighting like a mad dog to retain customers. In addition, it's likely that major hotels such as Marriott (NYSE:MAR), Blackstone-owned Hilton (NYSE:BX), and other chains may be advertising some of their properties and that could also draw away from RCL's customer base.
In addition to the stiff competition, the economy could continue to slow, which would have a negative impact on RCL's business.
Stocks with insider buying are no guarantee. However, I do think that they are a good starting point for further research. It's important to remember that insiders may have a longer investment horizon, and a different risk tolerance than other investors. In addition, they may be wrong in their stock picks. Execs and insiders are, after all, sometimes overly optimistic. (Just because you're willing to accept a risk, doesn't mean you always should. Learn more in Risk Tolerance Only Tells Half The Story.)
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