As earnings season closed, the window for insiders opened. And they took great advantage of this opportunity, with dozens of executives, directors and key shareholders making six figure investments in their own company stock.
That window will soon close for most insiders as year-end reports are prepared, making this a good time to review some of the savviest trades of the past month. After poring over all of the action, these four companies should be on your radar. (All data supplied by InsiderInsights.com)
Hertz Global Holdings, Inc. (NYSE: HTZ)
This vehicle rental firm has had a miserable few months. The company revealed a long period of financial mismanagement that will lead to the re-statement of results for 2011, 2012 and 2013.
While the board was cleaning house, it concluded that the company's operations had grown too bloated, and authorized a plan to cut operating expenses by $100 million. Part of Hertz's woes stem from acquisition indigestion related the 2013 purchase of Dollar Thrifty.
The board also brought in a new CEO, John Tague, an outsider with extensive experience in the fields of airlines and logistics.
'The Board favored the combination of airline, revenue management/operational and merger integration experience over a candidate with car rental experience,' note analysts at research firm MKM Partners.
Tague was handed a robust pay package, but he also took an unusual step. Tague bought $2 million of Hertz stock with his own funds, which he vowed to retain for as long as he helms the company. His average purchase price of $24.11 may prove timely, as shares traded above $30 back in August when the financial issues first arose. If Tague can right the ship, then his insider buying could provide a tidy windfall. MKM's Chris Agnew thinks Tague is the right man for the job, noting that rival Avis Budget Group, Inc. (NYSE: CAR) posted a robust turnaround after hiring an executive with airline industry experience.
Sealed Air Corp. (NYSE: SEE)
When I first profiled this maker of bubble wrap and other packaging, the newly-installed CEO Jerome Perebere faced the unpleasant task of fixing a failed acquisition.
The process took a while, but Peribere's efforts have paid off: The company generated a record $413 million in free cash flow in 2013, and management anticipates the company will generate $540 million in free cash flow this year. Analysts at Merrill Lynch have taken to calling Sealed Air an 'ATM,' thanks to that prodigious free cash flow, predicting that metric will surge to more than $600 million by 2016.
To reach that level, Peribere aims to further streamline operations. And he's backing up that view with a recent $500,000 stock purchase (at around $38 a share). It's unusual to see such heavy buying when shares are already near the 52-week high, but Peribere clearly sees even better days ahead.
Silver Bay Realty Trust Corp. (NYSE: SBY)
This 2012 IPO was initially well-received by investors as a play on rental housing. The company snapped up distressed single-family homes with an eye toward near-term rental income and long-term capital appreciation. But a very convoluted set of inter-locking management stakes led many investors to lose interest.
Management recently fixed the issue by dissolving some entities, in a process known as 'internalization.' But the damage has been done. Shares now trade at a solid discount to the estimated net asset value of the company's assets, currently worth $19.97 a share. (This figure is higher than book value, as it reflects updated 'mark-to-market' values, rather than historical costs).
While shares trade on the cheap, Director Irvin Kessler acquired $600,000 in stock on the open market, at an average price of $16 a share. That follows a similarly-sized purchase of shares he made back in August 2014.
SolarCity Corp. (Nasdaq: SCTY)
Buffalo, New York is enduring a miserable start to winter, but just a few months ago, it was celebrating a major victory. That's when the city inked a massive multi-year contract with this firm to build one of the nation's largest solar factories. SolarCity received so many tax breaks that the project should reap impressive returns. Still, shares have barely budged in response -- remaining more than 35% below the 52-week high, in tandem with a broader pullback for most solar stocks.
In response, to the share price pullback, CFO Brad Buss recently acquired $330,000 in stock (at an average price of $55.32). That's the first open market purchase by a SolarCity insider since 2012, according to InsiderInsights.com. Buss is likely focusing on the company's revenue trajectory: Analysts expect sales to rise to around $800 million in 2016, from $250 million this year, by which time the company is expected to generate 50% gross margins.
Other stocks with recent notable insider buying include:
Tile Shop Holdings, Inc. (NYSE: TTS): Five separate insiders have acquired more than $2 million in stock -- on a collective basis -- over the past two months.
NN, Inc. (Nasdaq: NNBR): Director William Dries bought $201,000 in stock at an average price of $20 a share.
Merrimack Pharmaceuticals, Inc. (Nasdaq: MACK): Director Michael Porter continues buying, even after the company received fast-track approval for a key drug.
Nuverra Environmental Solutions, Inc. (NYSE: NES): saw a solid spate of insider buying, just before announcing a just before announcing a major new contract with XTO Energy, a subsidiary of Exxon Mobil Corp. (NYSE: XOM).
Aon PLC (NYSE: AON), which has seen strong insider buying in tandem with a $5 billion share buyback expansion.
Risks To Consider: These companies have seen insider buying and zero insider selling recently. But if insiders start to sell in any of these stocks, the buying signal would likely be negated.
Action To Take --> Wall Street analysts can only guess about the health of a business, but these insiders, through their actions, are giving tacit endorsements that the near and/or long-term outlooks for their businesses are strong. Insider buying should never be the lone factor you consider when buying a stock, but it can bolster an already appealing case.
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