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The Ideal Position Size

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January 21, 2011 | Stocks | Author Asif

While having dinner with a fund manager in Portland, Oregon a few years ago we got to discussing position sizes in a portfolio and what he said has stuck with me since then. When asked what his ideal position size was he said that he prefers to have no more than 4% of his overall portfolio in an individual position.  This implied that he preferred to hold about 25 positions in his portfolio.

Then he asked me what kind of position sizing I use and I told him that my standard position size was 5% of the portfolio but I was willing to build a concentrated position that amounted to 10 to 15% of the portfolio if I really liked a particular investment. I was thinking of Activision Blizzard (ATVI), a company that I thought had a great blend of good products, strong management, growing revenues, a strong balance sheet and decent valuation. I had about 15% of my portfolio in Activision Blizzard. He then told me that the reason he sticks to a 4% allocation is that often it is not our top idea that turns out to be a winner but something else in the portfolio that delivers the big gains.

Truer words were never spoken. Even as the market roared back from the depths of March 2009, Activision Blizzard along with the rest of the gaming sector has languished and has been range bound. In contrast micro-cap stocks in my portfolio like Gluu Mobile (GLUU) and Towerstream (TWER) that I had perceived as more risky went on to do very well.

A short exchange on Twitter last week between yours truly and a couple of value investors reminded me of the conversation I had in Portland. Value investor and blogger extraordinaire Geoff Gannon had a post on his blog Gannon on Investing that talked about how he likes to hold 5 micro-cap stocks. My interpretation of this statement was that he liked to hold 5 micro-cap stocks as part of a larger portfolio but as you can see from this tweet, he prefers a concentrated portfolio of micro-cap stocks.

I decided to check with a couple of professional investors to see what their preferred position size was. Michael Bigger of Bigger Capital told me that positions in his investment portfolio start out at 10% of the portfolio. A hedge fund analyst I exchange tweets with told me that his preferred position size was 5%

So what exactly is the ideal number of stocks for a portfolio? Is it 5 stocks, 25 stocks or even more? For every early Warren Buffet who liked a concentrated portfolio of stocks, there is a Peter Lynch who used to hold dozens if not hundreds of stocks in his Fidelity Magellan fund that delivered outsized returns to its investors from 1977 until Mr. Lynch retired in 1990.

There are a number of factors to consider including the size of the portfolio, the type of investor you are (value, momentum, growth at a reasonable price) and your level of risk tolerance before you can figure out the ideal position size that works for you.

Risk tolerance is an important part of position sizing and by increasing the number of stocks in a portfolio, you can reduce some of the non-systemic risk that is specific to each stock. Various studies have shown that the benefits of diversification drop off after you add about 20 stocks to a portfolio and after 30 stocks additional gains are negligible.

The answer really comes down to whatever helps you sleep peacefully at night. While for some people that would mean a diversified portfolio of stocks across different sectors, market-caps and countries, there are others like Geoff who find it difficult to sleep at night because there are too many eggs to watch.

For additional reading, check out this presentation titled How Concentrated Should You Be? (PDF) by Zeke Ashton of Centaur Capital Partners.

Related Posts:

Ten Reasons I am Buying Activision Blizzard (ATVI)

Towerstream (TWER) Trading Below Cash

The Apple App Store Ecosystem and Glu Mobile – Part 2

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A Tale of Two IPOs

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July 16, 2010 | Stocks | Author Asif

Tesla RoadsterThe stock of electric car company Tesla Motors (TSLA) has been more breathtaking to watch than one of its expensive $100,000+ roadsters that I happened to come across earlier this week near the post office in my city. Following its  June 29 IPO priced at $17, the stock hit a high of $30.42 the next day before promptly losing more than half its value the following week, bottoming just under $15. The stock currently trades 17% above its IPO price at $19.89. While a lot of attention has been focused on this money losing yet promising company that is backed by a $465 million government loan, a $50 million investment by Toyota Motor (TM), a $50 million investment by Daimler and top tier silicon valley VCs, investors who have a strong stomach for volatility should probably revisit another company that went public earlier this year. This company saw its stock close 44% above its IPO price on its first day of trading when compared to Tesla’s 40% opening day pop.

This company is profitable, has a proven business model and one of its founders is a Nobel laureate. Financial Engines (FNGN) priced its IPO at $12 per share in March of this year and currently trades about 11% above its IPO price at $13.42. The company has a disruptive yet proven business model where it uses technology to offer portfolio management services and investment advice. Given the importance of asset allocation to portfolio returns as discussed in our October 2008 newsletter, William Sharpe, Professor of Finance, Emeritus at Stanford University and winner of the 1990 Noble Prize in Economics decided to start Financial Engines in 1996 and use technology to offer sophisticated investment advice to individuals regardless of their wealth or investment experience.

While the average client balance for the top 100 traditional Registered Investment Advisors (RIAs) is over $1 million, the average size of a portfolio managed by Financial Engines is $72,000. In fact 43% of the portfolios managed by the company have less than $20,000 in them. Despite the low average portfolio size, Financial Engines has almost $30 billion in assets under management (AUM) as of the first quarter of 2010. Their technology based solution and partnerships with several large employers to offer advice to 401K participants has helped the company scale AUM effectively from $6 billion in 2006 to $30 billion now. The company has partnerships with 115 of the Fortune 500 companies and has signed up over 360 employers in total.

Growth:

The company has a three pronged growth strategy:

1. Grow Assets Under Contract (AUC), which are currently $289 billion, by signing on more employers, organic growth through ongoing contributions by existing 401K participants, market appreciation, net new hires by employers and a shift towards automatically enrolling employees in 401K plans.

2. Grow Assets Under Management (AUM) by increasing enrollment by 401K participants from employers under contract who have not signed on yet.

3. Entering new markets by going beyond 401Ks and into IRA.

Q1 2010 Results:

Revenue in the first quarter of 2010 increased 40% year-over-year to $24.3 million. Net income increased to $1.6 million in Q1 2010 when compared to a loss of $0.7 million in Q1 2009. Non-GAAP Adjusted EBITDA for Q1 2010 increased 130% year-over-year to $5.3 million. However due to a one-time $5.5 million stock dividend, net loss attributable to shareholders  was $3.9 million or 25 cents a share.

Valuation:

Financial Engines expects to post revenue of $105 to $110 million in 2010 and adjusted EBITDA of $24 to $26 million. Using the mid-point of their EBITDA range and the current enterprise value of $448 million, I get a EV/EBITDA value of 18. The EV/Revenue ratio works out to 4.17. The company expects long-term EPS growth of 25 to 40% at operating margins of 15 to 20%.

Running a 10 year DCF model using a 10% discount rate, 20% earnings growth for 10 years and a 2% terminal rate, I get a current value of $23.54 for the stock. If you are a growth investor, Financial Engines should definitely be on your watch list and may provide a less risky alternative to Tesla Motors.

Related Reading:

Original S-1 Filing

William Sharpe and the Capital Asset Pricing Model (CAPM)

Investor Presentation – June 2010

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Can Microsoft Kinect and Sony’s Move Revive Electronic Arts?

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June 22, 2010 | Stocks | Author Asif

With the biggest conference for the video game industry E3 2010 concluding last week, interest in the video game industry is high as both gamers and investors look towards the crucial second half of the year. Beyond the standard racing and war games as well as the umpteenth iteration of Donkey Kong, gamers got a glimpse of two new innovations from Microsoft (MSFT) and Sony (SNE) that take the concept of Nintendo’s (NTDOY.PK) innovative Wii controllers or Wiimote to the next level by allowing parts of your body to become the controller. We covered Microsoft’s Kinect (formerly known as Project Natal) a few months ago in an article titled Project Natal: Revolutionary Technology For an Industry in Distress. Kinect, which is scheduled for launch on November 4, 2010 is already the second best seller on Amazon’s video game best sellers list.  Attempting to describe Kinect in words would not do the technology much justice and I will let the following video speak for itself. (If you are reading this by email and not directly from the SINLetter blog, click here)

The video game industry can certainly use any boost it can get from these new innovations mid way through the console refreshment cycle. While May video game software sales numbers are yet to be released, April was a dismal month with sales falling 22% year-over-year. If there is any company in this industry that can use a shot in the arm, it is Electronic Arts (ERTS). Once the largest game company, Electronic Arts with its aging franchises like The Sims and Need For Speed has been displaced from its perch by Activision Blizzard (ATVI) both in terms of revenue and market cap. Bobby Kotick, the CEO of Activision Blizzard, who was once a developer for Electronic Arts, achieved his goal of “pushing Electronic Arts aside and becoming No. 1 in the industry” in the words of Josh Resnick, a former director of production for Activision according to this outstanding LA Times article Activision’s modern warfare. For a slightly kinder profile of Mr. Kotick, check out this Kotaku article titled A Delightful Chat With The Most Hated Man in Video Games.

With Activision Blizzard the largest position in the SINLetter model portfolio and my personal portfolio I have been asked from time to time about my thoughts on Electronic Arts as a potential turnaround play or an acquisition candidate. On the surface it does appear that Electronic Arts has a lower valuation than Activision Blizzard with EA selling for less than 1.5 times sales and has a market cap of $5.2 billion while Activision trades at over 3 times annual sales and has a $14.35 billion market cap. However when you compare the two companies on every other metric including strength of the balance sheet, margins, growth rate and cash flow, Activision emerges as the clear choice. During the conference call announcing fourth quarter 2009 and full year results, Activision’s CFO and now COO Thomas Tippl remarked “we generated a record $1.2 billion of operating cash flow, which is more than ten times ahead of our next best competitor.”

One of the driving forces for the high margins and cash flow at Activision has been the contribution of the Blizzard unit and specifically the high margin subscription business from World of Warcraft (WoW). Is it conceivable that Electronic Arts may someday create a Massively Multiplayer Online Role Playing Game (MMORPG) that could challenge WoW’s dominance? Could Electronic Arts have a hit in its pipeline that could rival the success of Call of Duty: Modern Warfare 2? To answer these questions and to look into the potential of Electronic Arts as a turnaround play, I asked contributing author Jackie Judge to explore Electronic Art’s pipeline of upcoming games. Given below are some of her thoughts.

2010 bodes well for EA Games. The year was kicked off with the release of the highly anticipated Mass Effect 2 – developed by Bioware, and published by EA Games  – a game that sold over two million copies within a week of its release, and holds near perfect scores from game reviewers, according to Metacritic, close to 100 for both the PC and consoles. Following closely in the successful wake of Mass Effect 2 are several highly anticipated games being released later this year.

1. One of these projects is Project Redlime by Starbreeze Studios that promises a “reinvention of the classic action/strategy game Syndicate”. Project Redlime was recently chosen, as evident through a March press release given by Starbreeze Studios’ CEO Johan Kristiansson, to continue onward in development over another game in development with EA, one based on the ever-popular Jason Bourne franchise.

The Bourne license was last used in Robert Ludlum’s The Bourne Conspiracy, which received solid reviews in 2008. However, following Activision’s merger with Vivendi that same year, the Ludlum family reacquired the rights to make games based on Robert Ludlum’s novels, eventually shopping them out to EA in February 2009. According to the LA Times, EA will remain in partnership with the Ludlum estate, though no games based on the authors work are currently in development. An EA spokesperson reportedly told the newspaper that, “EA and the Ludlum Estate are still discussing making a game based on the Bourne franchise.”

Medal of Honor

Electronic Arts' Medal of Honor

2. Another highly anticipated game from EA Games this year includes a remake of the highly successful Medal of Honor game, originally released in 1999 by DreamWorks Interactive for the Playstation, and so popular it spawned an entire series. This first person shooter will launch on October 12, 2010 in North America, and will veer away from the original settings to a modern day Afghanistan one, and will emphasize a greater sense of realism; to achieve this, EA consulted with the United States Military on real issues faced overseas, like raiding terrorist hideouts, hostage situations, undercover operations and more.

Harry Potter Videogame

Harry Potter Videogame

3. EA has partnered with Warner Bros. Interactive Entertainment to develop two Harry Potter and the Deathly Hallows games to coincide with the equally anticipated final movies in the much-loved series. The first part will be released on all major gaming platforms alongside, purportedly, the release of the first half of the movie this autumn of 2010. When fans leave the theatres in droves this autumn, giggly from the scent of butterbeer and pumping adrenaline from throes of wand casting, this game could await them at home, to continue the story.

4. Another highly anticipated game from EA called Crysis 2 is expected to release in the fourth quarter (November 2010 by some accounts). The sequel to the original PC only title will now be available for PC, XBOX 360 and Playstation 3 and could very well surpass sales of the original, which sold more than 1 million copies.

5. Star Wars: The Old Republic built by Bioware in association withe Lucas Arts could be EA’s answer to World of Warcraft. Slated for release in 2011 and built around a strong franchise, this massively multiplayer game is expected to hit 2 million subscribers according to some analysts.

With EA’s foray into the social gaming through their acquisition of Playfish for $300 million, an interesting pipeline of products, new innovations on the console/controller front, the potential of a successful MMORPG in 2011 and $2 billion in cash/investments on its balance sheet, EA is certainly worth a second look. However given current market conditions and the fact that I already have exposure to the industry in my portfolio through Activision Blizzard  and Glu Mobile (GLUU), I prefer keeping EA on my watch list for now.

Related Posts:

Ten Reasons I am Buying Activision Blizzard

Thoughts on Activision Blizzard’s Q4 Results

Activision Blizzard: A New MMORPG and Subscription Model for Starcraft II

The Apple App Store Ecosystem and Glu Mobile – Part 1

The Apple App Store Ecosystem and Glu Mobile – Part 2

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Insider Weekends – June 18, 2010

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June 20, 2010 | Insider Buying, Stocks | Author Asif

Welcome to the second edition of Insider Weekends and thank you for your positive feedback after reading the Introduction to Insider Weekends.

Sell/Buy Ratio:

The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider buying in that week. The adjusted ratio for last week was 30.11. In other words, insiders sold more than 30 times as much stock as they purchased. This is significantly higher than the 9.41 ratio from the week prior but still well below the high of 68 in the last week of April. We are calculating an adjusted ratio by removing transactions by funds and trying as best as possible only to retain information about insiders and 10% owners who are not funds.

I also removed two sets of transactions, one on the buy side and one on the sell side that were significantly skewing the ratio last week. The transaction on the buy side I removed was the purchase of 15.59 million shares of Lions Gate Entertainment (LGF) by famous investor Carl Icahn through his tender offer of $7/share. Mr. Icahn spent $109.15 million acquiring these shares and bumping up his total stake in Lions Gate to 32%. The transaction on the sell side I removed was the sale of 19.63 million shares of Ulta Salon (ULTA) through an offering by its CEO and other directors that generated $419.39 million. One could argue that while Mr. Icahn is neither a founder of Lions Gate nor part of the management team, taking out that buy transaction makes sense but the sale by the insiders of Ulta Salon should be retained. Not removing the Ulta transaction bumps the ratio up to 48.52.

Notable Insider Buys Last Week:

1. Saul Centers (BFS) $41.89

Chairman and CEO Francis Saul II once again acquired 94,306 shares of this shopping and office REIT paying $3.975 million at an average purchase price of $41.96. Over the last 13 weeks he has purchased over $23 million of Saul Centers stock.

Key Statistics:

P/E: 33.70 Forward P/E: 16.76 Industry P/E: 28.76
P/S: 4.76 Price/Book: 15.55 EV/EBITDA: 13.46
Market Cap: 763.78 million Daily Volume: 62,834 52 Week Range: $27.56 – $44.65

2. DuPont Fabros Technology (DFT) $26.40

Director Mark Amin acquired 84,332 shares of this Washington DC based data center REIT paying $2.16 million at a purchase price of $25.65. Even with a recent 50% increase in the dividend, the dividend yield is now just 1.9% and not very attractive for a REIT.

Key Statistics:

P/E: 347.37 Forward P/E: 26.67 Industry P/E: 28.60
P/S: 5.26 Price/Book: 2.05 EV/EBITDA: 19.61
Market Cap: $1.15 billion Daily Volume: 2,401,494 52 Week Range: $8.25 – $28.19

3. MRV Communications (MRVC.PK) $1.41

Director Charles Gillman acquired 1,308,722 shares of this telecommunications equipment provider paying $1.82 million at a purchase price of $1.39 per share. Director Kenneth Shubin Stein also acquired 100,000 shares paying $129,430 at a purchase price of $1.29. Dr. Kenneth Shubin Stein, MD, CFA also happens to be the founder of the deep-value fund Spencer Capital Management and teaches as an adjunct professor at the Columbia University Graduate School of Business. Charles Gillman is Senior Managing Member at value oriented hedge fund Boston Avenue Capital.

Key Statistics:

P/E: 11.95 Forward P/E: N/A Industry P/E: N/A
P/S: 0.46 Price/Book: 1.22 EV/EBITDA: 9.39
Market Cap: 222.33 million Daily Volume: 1,961,247 52 Week Range: $0.35 – $1.60

4. Quidel (QDEL) $12.35

A number of insiders including the CEO, CFO and three directors acquired 130,525 shares of this San Diego based diagnostic testing solutions company  paying $1.4 million at an average purchase price of $10.75 (transactions range from $10.61 to $11.25).

Key Statistics:

P/E: 11.09 Forward P/E: 17.15 Industry P/E: 17.86
P/S: 2.02 Price/Book: 2.92 EV/EBITDA: 6.64
Market Cap: 356.69 million Daily Volume: 387,271 52 Week Range: $10.48 – $18.81

5. NCI Building Systems (NCS) $9.85

A number of insiders including the CEO, CFO and two directors acquired 102,630 shares of this construction metal products company paying $883,720 at an average purchase price of $8.61 (transactions range from $8.56 to 9.39). CEO Norman Chambers acquired a bulk of these shares purchasing 95,516 shares and increasing his holdings by 39%.

Key Statistics:

P/E: NA Forward P/E: NA Industry P/E: 25.15
P/S: 0.2 Price/Book: 5.72 EV/EBITDA: 18.78
Market Cap: 178.15 million Daily Volume: 468,085 52 Week Range: $8 – $25.60

Another insider purchase worth noting is the purchase of 43,260 shares of Hornbeck Offshore Services (HOS) by father-son team Larry Hornbeck and Todd Hornbeck. HOS is a 1,300 employee Louisiana based company that provides transportation and logistics services to the offshore drilling industry through offshore supply vessels, tugs and barges. Larry, the original founder of the business is now a director and son Todd is currently President and CEO.

Larry purchased 22,500 shares at an average price of $14.36 and Todd purchased 20,760 shares at an average price of $14.40. The stock closed Friday at $14.98, up 4.46%. According to this Barron’s article, less than 25% of the company’s offshore contract coverage in the second half of the year is for drilling in the Gulf of Mexico and just 6% in 2011. Five of its 55 vessels were also involved in relief efforts. The company  has filed a lawsuit against the federal government seeking to nullify the six month ban on deep water drilling in the Gulf of Mexico. The stock is off 39% from its April 30 high of $24.47 following the BP oil disaster.

Notable Insider Sales Last Week:

1. The Home Depot (HD) $31.94

Director David Batchelder sold 4.08 million shares of this home improvement retailer company generating $131.2 million at an average selling price of $32.17

Key Statistics:

P/E: 18.81 Forward P/E: 14.01 Industry P/E: 18.81
P/S: 0.80 Price/Book: 2.78 EV/EBITDA: 9.06
Market Cap: 53.67 billion Daily Volume: 19,786,013 52 Week Range: $22.27 – $37.03

2. Mercadolibre (MELI) $59.23

Director Anton Levy sold 700,956 shares of this Argentinian e-commerce and payments provider generating $40.67 million at an average selling price of $58.03. CFO Kazah Hernan sold 20,000 shares generating $1.2 million at a selling price of $59.06 and Senior VP of Payments Gimenez Osvaldo sold 5,000 shares generating $290,750 at a selling price of $58.15.

Key Statistics:

P/E: 69.85 Forward P/E: 39.49 Industry P/E: 22.81
P/S: 14.38 Price/Book: 21.75 EV/EBITDA: 36.57
Market Cap: 2.61 billion Daily Volume: 986,218 52 Week Range: $21.20 – $62.14

3. Fidelity National Information Services (FIS) $27.48

Executive Chairman William Foley II sold 750,000 shares of FIS generating $20.75 million at an average selling price of $27.67. This transaction reduced his holdings by 29%.

Key Statistics:

P/E: 47.3 Forward P/E: 12.16 Industry P/E: 23.3
P/S: 2.48 Price/Book: 1.25 EV/EBITDA: 12.59
Market Cap: 10.35 billion Daily Volume: 5,175,620 52 Week Range: $19.16 – $30.78

4. Plains All American Pipeline (PAA) $58.47

Director Gary Petersen sold 328,200 shares or 98% of his holdings of this oil and natural gas pipeline company generating $19.15 million at an average selling price of $58.35.

Key Statistics:

P/E: 21.35 Forward P/E: 19.49 Industry P/E: 18.85
P/S: 0.37 Price/Book: 1.98 EV/EBITDA: 13.43
Market Cap: 7.96 billion Daily Volume: 397,434 52 Week Range: $40.01 – $60.06

5. United Natural Foods (FIS) $32.79

Several Directors and a regional President sold 231,805 shares of this natural and organic food company generating $7.65 million. Transaction prices ranged from $32.53 to $33.65.

Key Statistics:

P/E: 21.43 Forward P/E: 18.22 Industry P/E: 12.29
P/S: 0.4 Price/Book: 2.37 EV/EBITDA: 12.00
Market Cap: 1.42 billion Daily Volume: 302,754 52 Week Range: $23.03 – $34.25


Voluntary Disclosure:
I own shares of Lions Gate Entertainment (LGF) and Quidel (QDEL).

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Introduction to Insider Weekends

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June 13, 2010 | Insider Buying, Stocks | Author Asif

I am pleased to introduce a new weekly service called Insider Weekends that highlights buying and selling of stock by company insiders. Numerous academic studies have found that insiders as a whole tend to outperform the general market. A 2007 study by Alan D. Jagolinzer, an assistant professor at the Stanford University Graduate School of Business, found that even insiders that were enrolled in “automated” 10b5-1 plans where they periodically sell certain amounts of stocks according to the plan, managed to beat the market by 6% over a six month period primarily through trades they could cancel under this plan. This study prompted the SEC to review and eventually revise the 10b5-1 plan rules in March 2009.

In a market that appears directionless and bounces from day to day, reviewing insider transactions for opportunities could turn up some gems in the rough. I have personally seen many small and micro cap companies that had strong insider buying near the March 2009 lows go on to become 10 baggers.

Insiders may sell for a number of reasons including the purchase of a new home, paying for education or in some instances simply to diversify their holdings. The selling may not necessarily imply that they view the near term prospects of their company negatively. On the other hand, insider buying often implies better prospects for the company in the future or a stock that in the insider’s opinion is undervalued.

Sell/Buy Ratio:

The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider buying in that week. The adjusted ratio for last week was 9.41. In other words, insiders sold more than 9 times as much stock as they purchased. While this might seem large, the Sell/Buy ratio that we calculated for the last several weeks since we started collecting this data has been much higher and was an astounding 68 in the last week of April. The last week of April is when the market began its recent correction as you can see from the chart of the S&P 500 index below. We are calculating an adjusted ratio by removing all funds and trying as best as possible only to retain information about insiders and 10% owners who are not funds.

Given below is the list of 5 notable insider buys and 5 notable insider sales last week. I have also included a few key metrics below the name of the company. Certain industries have their preferred metrics such as sales store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison but the simple valuation metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys Last Week:

1. Legg Mason (LM) $32.37

Billionaire Director Nelson Peltz acquired 1 million shares of the asset management company paying $30.4 million and bumping up his holdings by 10% to 11.08 million shares. Average acquisition price $30.4.

Key Statistics:

P/E: 24.62 Forward P/E: 15.64 Industry P/E: 18.22
P/S: 1.95 Price/Book: 0.88 EV/EBITDA: 11.21
Market Cap: 5.29 billion Daily Volume: 2.89 million 52 Week Range: $21.68 – $34.83

2. Saul Centers (BFS) $41.84

CEO Francis Saul II acquired 130,800 shares of this office and shopping center REIT paying $5.1 million at an average purchase price of $38.97.

Key Statistics:

P/E: 33.66 Forward P/E: 16.74 Industry P/E: 28.76
P/S: 4.60 Price/Book: 15.05 EV/EBITDA: 14.22
Market Cap: 762.87 million Daily Volume: 85,292 52 Week Range: $27.56 – $44.65

3. MF Global Holdings (MF) $6.99

New CEO and Chairman of the Board Jon Corzine acquired 352,100 shares of this financial company paying $2.499 million at a purchase price of $7.1. Directors and other senior management also acquired an additional $692,250 of stock last week.

Key Statistics:

P/E: NA Forward P/E: 9.71 Industry P/E: 24.75
P/S: 0.46 Price/Book: 0.74 EV/EBITDA: NA
Market Cap: 851.43 million Daily Volume: 4.45 million 52 Week Range: $4.88 – $9.94

4. A. H. Belo Corporation (AHC) $6.75

Chairman, President and CEO Robert Decherd acquired 234,249 shares of this newspaper and publishing company paying $1.67 million at a purchase price $7.13.

Key Statistics:

P/E: NA Forward P/E: 51.92 Industry P/E: 15.66
P/S: 0.26 Price/Book: 0.43 EV/EBITDA: 2.00
Market Cap: 140.86 million Daily Volume: 105,545 52 Week Range: $0.92 – $9.16

5. SunPower (SPWRA) $13.40

Director Thurman Rodgers acquired 100,000 shares of this solar company paying $1.04 million at a purchase price of $10.36. SunPower’s CFO also acquired 5,000 shares for $50,443 at a purchase price of $10.09.

Key Statistics:

P/E: 23.18 Forward P/E: 7.53 Industry P/E: 23.18
P/S: 0.75 Price/Book: 0.88 EV/EBITDA: 10.06
Market Cap: 1.31 billion Daily Volume: 3.33 million 52 Week Range: $10.11 – $34

What is interesting about this group of companies is that with the exception of Saul Centers, all of them are trading below book value. Please note that the book value number on Yahoo Finance includes intangibles and goodwill. It is worth mentioning that besides the $5.1 million purchase last week, Francis Saul has been purchasing stock of Saul Centers on the open market since mid-March and has acquired nearly $20 million of stock over the last 12 weeks.

Another company that stood out is Center Bancorp (CNBC), the parent company of New Jersey based Union Central National Bank. Besides its eye catching stock symbol what made this company stand out was a number of purchases by its directors that totaled $817,176. Center Bancorp  had considered raising capital through a common stock offering but scrapped plans earlier this month.

Director Joseph Hyde III at the microcap biopharmaceutical company GTx (GTXI) acquired $865,535 of its stock for an average purchase price of $2.59. His total open market purchases since early May have amounted to $2.42 million. Given that the market cap of GTx is under $105 million, maybe Mr. Hyde knows something we don’t.

I also noticed a number of insider purchases by the CEO and directors of SINLetter Special Reports Portfolio holding Employers Holdings (EIG). While the total transaction amount last week was less than $65,000, insiders have purchased $284,350 in stock since late May and it was good to see some insider buying in this undervalued insurance company.

Notable Insider Sales Last Week:
1. Nu Skin Enterprises (NUS) $26.77

Chairman Blake Roney sold 4 million Class A shares for $25.65, generating $102.6 million from the sale. Two additional directors also sold an additional 57,000 Class A shares at the same price. All three sellers are founders of the company and the offering was handled by JP Morgan and Deutsche Bank.

Key Statistics:

P/E: 15.86 Forward P/E: 12.69 Industry P/E: 17.29
P/S: 1.2 Price/Book: 4.2 EV/EBITDA: 8.18
Market Cap: 1.69 billion Daily Volume: 784,202 52 Week Range: $13.44 – $33.99

2. Tutor Perini Corporation (TPC) $17.20

Chairman & CEO Ronald Tutor sold 600,000 shares of this construction services company generating $10 million at a selling price of $16.68.

Key Statistics:

P/E: 7.11 Forward P/E: NA Industry P/E: 18.13
P/S: 0.19 Price/Book: 0.65 EV/EBITDA: 3.22
Market Cap: 844 million Daily Volume: 281,615 52 Week Range: $13.83 – $25.48

3. Estee Lauder (EL) $57.86

Chairman Emeritus Leonard Lauder sold 150,000 shares of this cosmetic giant over the last two weeks generating $8.53 million at an average selling price of $56.88. Chairman of Clinique Labs LLC, Ronald Lauder, sold 125,000 shares two weeks ago generating $7.42 million at a selling price of $59.36.

Key Statistics:

P/E: 26.43 Forward P/E: 18.19 Industry P/E: 17.29
P/S: 1.51 Price/Book: 5.57 EV/EBITDA: 9.57
Market Cap: 11.52 billion Daily Volume: 2.07 million 52 Week Range: $30 – $71.29

4. Salesforce.com (CRM) $96.64

Salesforce.com probably shows up on every insider selling screen because founder, CEO and Chairman Marc Benioff has been consistently selling shares as far back as I can remember. He currently seems to be on a 10,000 shares a day sales plan and has sold $52.22 million worth of stock since mid-March. However the reason Salesforce.com made the list does not have to do with Marc Benioff’s sales but instead a $3.94 million sale last week by EVP Parker Harris where he sold 42,873 share at a price of $91.95. The stock hit a new 52 week high last Friday and has a very rich valuation despite the fact that they have to defer both revenue and expenses due to the subscription nature of their product.

Key Statistics:

P/E: 156.88 Forward P/E: 63.16 Industry P/E: 27.14
P/S: 8.63 Price/Book: 10.48 EV/EBITDA: 73.32
Market Cap: 12.44 billion Daily Volume: 2.26 million 52 Week Range: $35.27 – $96.87

5. BJ’s Wholesale Club (BJ) $38.49

Director Herbert Zarkin sold 152,606 shares of this warehouse retailer generating $5.76 million at a selling price of $37.74. BJ’s CFO Frank Forward also sold nearly $1 million of its stock by selling 25,000 shares for $38.5. The CFO reduced his stake in the company by 26% through this sale.

Key Statistics:

P/E: 15.63 Forward P/E: 13.23 Industry P/E: 17.32
P/S: 0.2 Price/Book: 1.96 EV/EBITDA: 5.6
Market Cap: 2.07 billion Daily Volume: 1.23 million 52 Week Range: $29.73 – $40.63

Voluntary Disclosure: I hold Employers Holdings (EIG) both in my personal portfolio and in the SINLetter Special Reports portfolio.

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