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Tickers in this Article: FAST, GE, RT
The stock markets of 2013 and 2014 now share one thing in common: They've each had a 5% pullback.

#-ad_banner-#It happened just once last year (in late May and June after investors sensed that the Federal Reserve would start to taper) and already has happened in 2014, just 35 days into the trading year.

How unusual was the market action last year? It was only the fifth year in the past 50 with one or fewer pullbacks of 5%, according to Bespoke Investment Research. In other words, such pullbacks should be expected several times a year.

As I noted last week, there aren't especially good reasons for the current round of market weakness, so the damage may stay contained at current levels. (Unless margin selling kicks in, which is my biggest worry right now, as it induces a vicious cycle of further selling.)

Still, the market pullback has created a chance to scour for fresh openings. And one of my favorite research moves is to identify stocks with heavy insider buying that have now fallen below levels where insiders bought in. These stocks of course can fall further (given that insiders are notoriously bad market timers), but the recent insider buying is a signal that business conditions are good and getting better.

Here are three stocks that can be bought at below-insider prices. (All insider data courtesy of InsiderInsights.com.)

1. Fastenal (Nasdaq: FAST)​
One of the emerging themes for the U.S. economy is the slow re-emergence of a manufacturing base. A number of companies have announced plans to "inshore" production as the cost of doing business in China rises steadily. To be sure, the number of U.S. industrial jobs remains far below the peak levels seen several decades ago, and some low-skilled jobs will never return, but complex manufacturing in the U.S. finally has a brighter future. That trend should play right into the hands of Fastenal, which sells a wide range of maintenance, repair and production products. (The company controls 45% of the U.S. fastener market.) Fastenal also operates a network of 2,700 stores to serve its industrial and construction customers.

Despite a bright long-term outlook, shares have slid from the low $50s in November to a recent $43. Fastenal missed fourth-quarter profit estimates by a penny, which led insiders to give this stock a vote of confidence. Since Jan. 27, three insiders have acquired a combined 5,600 shares at an average price of $44.60. Shares have since slipped below their buying levels, and further market weakness could compel these insiders to continue buying.​

2. GE (NYSE: GE)​
GE's CEO Jeff Immelt has to be feeling the heat. As an article in Bloomberg Businessweek noted two months ago, this stock is 33% lower than when Immelt took the reins 12 years ago. (The S&P 500 has risen 61% in that time, excluding dividends.) Immelt has had his doubters ever since he took the reins from the esteemed Jack Welch. Investors have clamored for bold moves, and despite a high-profile move into entertainment (which was eventually abandoned), Immelt has preferred to act as more of a caretaker than a visionary.

A snapshot of growth forecasts also implies a troubled company. Sales are expected to barely grow in 2014 and 2015, and per-share profits are also stuck in low-growth mode. The challenged global economy gets some of the blame, but bolder action is needed to restore this company's luster.

Yet GE remains in fighting shape. Thanks to solid cash flow, the company's cash balance grew from $77 billion in 2012 to $132.5 billion a year later. The company also reduced long-term debt by $31 billion in 2013. A cleaner balance sheet may enable Immelt to pursue the bold strike that many hope for.

Meanwhile, GE's directors have shown their support. From late November to late January, a pair of them acquired a combined 19,000 shares at an average price of $26. Immelt followed suit with his own purchase of 40,000 shares at $25 a share. The stock has now moved below all of those transaction prices, and investors should use the buying signal to take a fresh look at this beleaguered conglomerate.

3. Ruby Tuesday (NYSE: RT)​
James Buettgen is working hard to get investors to pay attention to his company. The CEO of Ruby Tuesday acquired 100,000 shares in early November at an average price of $5.88. That led to a fresh spike in the stock, as investors sensed that value-unlocking moves would soon be announced. That upward move couldn't be sustained, so Buettgen went back to the well, acquiring 50,000 shares at $5.63 apiece in late January. Shares are now even lower than that second purchase price.


This restaurant erred in an attempt to move upscale, and it's now in the painful process of re-establishing its image as a value-oriented dining chain. Some investors believe that Ruby Tuesday would be better managed by turnaround specialists, which has led to rising chatter about an investment banking relationship with Goldman Sachs. If that's the case, Buettgen's insider buying may be based on a belief that the chain would garner a decent premium from a buyout shop. ​


Other companies which have seen insider buying come at prices above current trading levels:

• MVC Capital (NYSE: MVC)
• PROS Holding (NYSE: PRO)
• Reed's Inc. (NYSE: REED)
• Triumph Group (NYSE: TGI)
• First Niagara Financial (Nasdaq: FNFG)
• Unifi (NYSE: UFI)
• Janus Capital (NYSE: JNS)
• Oil-Dri (NYSE: ODC)
• Optimize RX (OTC: OPRX)
• Orchid Island Capital (NYSE: ORC)
• CHC Group (NYSE: HELI)


Risks to Consider: As noted earlier, insiders are lousy market timers, so these should be used as long-term signals, not short-term ones.

Action to Take --> Few insiders would be foolish enough to commit their own capital if business conditions are worse than the investing public suggests. On the contrary, insiders generally believe that business is good or even better than a lagging share price believes. Buying such stocks at prices below where insiders paid provides an extra margin for error.

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