A corporate insider is defined by the SEC as one of a company's officers or directors or any beneficial owner of more than 10% of a company's equity. Insiders are permitted to buy and sell stock in their companies, but they must follow certain guidelines, including registering such trades with the SEC. These insider trades, being public information, can provide insight into the confidence level of those in the know. Some insider trades mean next to nothing, but under the right circumstances, an insider trade might be a key piece of information. Certainly, an investor ignores the actions of insiders at his peril. In the following cases, we believe that recent insider buying justifies increased investor confidence, and makes the stocks into attractive buys.
We have pointed to Herbalife (HLF) as a buy before, and believe that it remains a strong and compelling buy at its current price. Herbalife presents a unique stock opportunity, to say the very least. In recent weeks, the stock has become the battleground for dueling corporate raiders Bill Ackman (short) and Carl Icahn (long). Both have thrown a great deal of money at the stock, and in such proportion to HLF's usual trading volume that their actions determine the stock's price more than any other factor. Since Ackman started shorting when the stock was in the $45 dollar range, and Icahn started buying when it was under $30, they could both, technically, hold profitable positions with the stock trading at $37.28. That is not to say that either one could unwind his position and remain profitable, as attempting to do so would put enormous pressure on the stock price. Since neither man can go backwards, they have both instead been increasing the size of their positions. Total disaster for one man or the other now seems inevitable; it is the market's version of a cage match, or a duel between two deadly gunslingers.