As earnings season comes to an end, so does the opportunity for a company’s officers and directors to snap up company shares with their own money. Most corporate governance policies restrict such activity to a fairly short period after quarterly earnings are announced. Judging by the sheer volume of meaningful insider purchases, insiders have been quite busy this month, according to data from Insiderinsights.com.
Trying to research the many companies with insider buying can be a daunting task. To winnow the field of research candidates, I only focus on companies with at least $100,000 -- and preferably a lot more -- in buying, minimal insider selling and actual buying, and not just stock options-conversions, which many sources cite as a type of insider buying.
Here’s a look at three companies with recent insider buying.
One of the hottest areas of biotech research involves the alteration of DNA mutations. This company is taking a slightly different approach: it’s developing vaccines against rogue genes and various viruses, many of which can lead to various types of cancers. Inovio’s INO-5150, for example, is entering Phase III testing as a vaccine against prostate cancer. Another vaccine, VGX-3100, targets cervical cancer.
How do these vaccines work? Inovio starts with fragments of the pathogen’s DNA linked to a specific disease or virus, and then alters the DNA to trigger an immune response against that rogue pathogen. The company is targeting other maladies such as HIV and influenza.
Shares surged above $13 last month on news that Phase II results for VGX-3100 were favorable. Yet shares eventually slid below $10 on profit-taking, leading three insiders to acquire a combined $2.6 million in stock this month. To be sure, this is a long-term opportunity, as none of the company’s drugs will reach the market for several years. Meanwhile, with more than $100 million in cash, a roughly $10 million quarterly cash burn and a partnership with Roche Holdings -- which should reap milestone payments -- Inovio has little need to sell shares while it awaits an eventual possible revenue ramp.
2. Zais Financial Corp. (NYSE: ZFC)
It’s easy to see why director Christian Zugel recently bought $567,000 in company stock (at an average price of $18.93): The company’s stated book value is $22.37, translating into a price-to-book discount of more than 10%. Equally impressive, shares sport a dividend yield of nearly 10%.
Zais borrows low-cost funds to buy higher-yielding mortgage bonds. Using a fair amount of debt leverage, Zais is able to magnify the spread differentials. I profiled Zais and its peers in June 2014. To be sure, when interest rates eventually rise, these companies may see narrowing profit spreads, but even if that eventually happens and management decides to slowly run off the bond portfolio, shares have nearly 20% upside just to get back to stated book value.
It’s been a tough year for this strength and nutrition retailer. The Food & Drug Administration is mandating more warning labels for its supplements, key executives have been replaced and the company’s sales growth rate, which had grown at a double-digit pace in 2011 and 2012, has been falling steadily in 2013 and 2014. GNC has trailed profit forecasts for three straight quarters. In that light, a share price slide was almost inevitable.
Yet shares have recently bucked the downward trend, thanks to two key factors. First, GNC recently announced a $500 million share buyback that could shrink the share count by more than 10%. Shares already trade for just 12 times projected 2015 profits and the buyback could boost EPS and shrink the firm’s price to earnings ratio further. Second, the company’s new Chairman, Michael Hines, acquired more than $1 million in stock in mid-August. That’s the first open market purchase by any GNC insider since late 2012. Hines presumably anticipates a turnaround strategy that will help revitalize shares.
Analysts at Credit Suisse think the recent hiring of Michael Archbold as CEO is also a key ingredient of any turnaround. They recently upgraded shares to buy, suggesting that GNC has the potential to consolidate this niche by acquiring smaller rivals. They think such moves may be part of Archbold’s playbook, as he used to work for a key rival.
Other stocks with significant insider buying include:
• Ariad Pharmaceuticals, Inc. (Nasdaq: ARIA) • Intevac, Inc. (Nasdaq: IVAC) • Laredo Petroleum, Inc. (NYSE: LPI) • Ciber, Inc. (NYSE: CBR) • Annaly Capital Management, Inc. (NYSE: NLY) • TearLab Corp. (Nasdaq: TEAR)
Risks to Consider: Insiders rarely trade on expectations of imminent positive news, so look at these share purchases as a long-term signal of value.
Action to Take--> The appeal of insider buying as a research angle is self-evident: These insiders know their businesses better than Wall Street analysts and fund managers do. And they are privy to the long-term growth plans that may not yet be fully apparent to all investors. All three of these stocks hold distinct forms of appeal and are worthy of further research.
