Recent insider buying activity has been reported in these three stocks. Would it be wise to follow the insiders?
Kaman Corporation (NYSE:KAMN) : The company engages in the international, commercial and military areospace business, as well as in industrial distribution.
On Mar. 1, Kaman Corporation (NYSE:KAMN) Chairman, President & CEO Mr. Neal Keating bought 2,000 shares of Kaman Corporation (NYSE:KAMN) at $34.90 each for a total purchase of $69,808.
The stock currently has a P/E of 18.23, slightly higher than the S&P 500 average of 17. However, when taking earnings estimates into account, the stock becomes more attractive, as the forward P/E is 13.62. The PEG is 1.22, which, although above 1, is still the lowest of the three stocks we’ll examine.
Analysts are slightly bullish on the stock: Kaman Corporation (NYSE:KAMN) has an average recommendation of 2.30 (overweight-hold), and an average price target of $40, which implies that the stock has a potential upside of 14.29% from current prices.
Kaman Corporation (NYSE:KAMN) pays a dividend of $0.64/share, which works out to a yield of 1.83%. The company has paid a dividend to its shareholders since 2012.
The stock is currently 9.37% off its 52-week high of $38.62. YTD, the stock price has gone down almost 5%. The price is currently 27% above the 52-week low of $27.57.
My take: The company’s business might suffer from reduced defense spending and sluggish industrial demand, but the company has beat earnings estimates, is well-managed and decently valued, and should perform well as fears from reduced military spending subside and industrial markets continue to recover. This could be a good long-term play, and investors could buy some shares at a discount if the price keeps falling in the short-term.
The Valspar Corporation (NYSE:VAL): The company manufactures and distributes a range of coatings, paints and related products.
On Feb. 25, director John Ballbach bought 1,246 shares at a price of $60 each for a total of $74,760.
With regards to valuation, the stock has a P/E of 19.63, which is above the market average, but below that of its main competitors. Forward P/E is 14.08, and the PEG is 1.47.
Analysts are slightly bullish: the mean recomendation is 2.30 (overweight-hold), and the average price target on the stock is $68.50, which implies that the stock price has an upside potential of 11.82% from current levels. Two analyst reports published in February (by Barclays and by Deutsche Bank), give the stock an equal weight/hold rating, and a price target of $67 and $68 respectively.
The Valspar Corporation (NYSE:VAL) pays a dividend of $0.92/share, which works out to a yield of 1.50%. The company has been paying a dividend to its shareholders since 1992.
The stock is 10% below its 52-week high of $68.17. 2013 started well for the stock, but, in mid-February, when earnings reports missed analyst estimates, the stock started going down, to the point where it has actually lost 1.83% YTD. The fact that insiders are buying now could suggest that the price drop has been an overreaction, and that the stock could actually outperform in the mid-term.
My take: While valuations, financials, and ratings are average, the insider buying could suggest that the stock has dropped too much, and that it is now time to buy on dips. As a stock closely linked to industrial production, it should follow industrial recovery quite closely. Hence, as the economy recovers, this stock should follow suit.
On Feb 26th, Director Charles Pitman bought 350 shares at $73.60 each (total purchase value: $25,760). Four more insiders (including the president, the CEO, the EVP, and the SVP) exercised their options to buy more shares of the company during February.
Apache Corporation (NYSE:APA) has a P/E of 15.14, which is slightly below the market average. The forward P/E, however, looks much more attractive, at just 6.99. When factoring in growth, the PEG looks a bit too high: 2.29.
Analysts are slightly bullish on the stock: the average recomendation is 2.10 (overweight), and the stock has an average price target $101.87, which implies that the stock has a potential price upside of almost 40% from current price levels. The most recent analyst report (UBS on Feb. 15) rated the stock a “buy,” and gave it a $94 price target.
Apache Corporation (NYSE:APA) pays a dividend of $0.80/share, which works out to a yield of 1.08%, slightly below the industry’s average. A hiatus in the early 2000s notwithstanding, the company has paid a dividend to its shareholders since 1987.
The stock is 32.72% below its 52-week high of $109.62, and only 1.5% above the 52-week low of $72.62. The stock price has fallen over 6% YTD, and has been experiencing negative momentum since March 2012. The fact that insiders are buying could suggest that the stock might be undervalued, and that better performance is in the offing.
My take: The stock has been severely beaten since mid last year, so this could be a good contrarian play. Investors should expect a bumpy ride, but the stock is trading at an attractive P/B ratio (0.92), and is in a solid business sector. Sure, there are probably other oil companies out there that will outperform Apache Corporation (NYSE:APA), and the negative momentum can scare prospective investors off, but the recent insider buying could signal that the company has been oversold, and that it can now be the time to buy some shares at a discount.
| P/E | Fw P/E | PEG | Mean Rec | Avg Price Target (% upside potential) | ROE | Div Yield | |
| KAMN | 18.23 | 13.62 | 1.22 | 2.30 | $40 (+14.29%) | 12.43% | 1.83% |
| VAL | 19.63 | 14.08 | 1.47 | 2.30 | $68.50 (+11.82%) | 24.13% | 1.50% |
| APA | 15.14 | 6.99 | 2.29 | 2.10 | $101.87 (+38.13%) | 6.51% | 1.08% |
| Edge | APA | APA | KAMN | APA | APA | VAL | KAMN |
The bottom line
The stocks all engage in different business and have their challenges: Kaman Corporation (NYSE:KAMN) might suffer from decreased defense spending, The Valspar Corporation (NYSE:VAL) disappointed analysts and could stagnate if industrial demand doesn’t pick up, and Apache Corporation (NYSE:APA) stock has performed terribly since mid-2012. However, all three companies have had insiders, who hold unique insights into a company’s business, buying shares. I would recommend that investors conduct their own analysis and decide whether it is worth copying the insiders and investing in any of these relatively out-of-favor stocks.
The article Insiders Are Buying These Stocks: Should You? originally appeared on Fool.com and is written by Alex Bastardas.
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