Insiders Are Buying These 6 Stocks That A Value Investor Should Avoid

If you can’t afford to shell out $600 for one share of Apple (AAPL), you might consider these lower-priced stocks that insiders are buying heavily. But buyer beware, the earnings potential of the companies below are shaky at best.

Insider sentiment

The people who know a company best are, naturally, those who work there. Managers and board members are very likely to by stock in their firm (with their personal funds) if they believe the market price is undervalued. This may be especially true if they are optimistic about new developments and feel the market hasn’t appropriately priced it in yet.

With this is mind, we screened for stocks with significant net insider buying over the past six months.

While insider buying can indicate confidence in a company, it can also be a move of desperation for distressed companies with falling share prices. Many at Lehman Brothers myopically thought the share of price of their company stock was undervalued even as internal problems persisted.

Analyst opinion

Analysts ratings for this list are largely high (moderate to strong buys) according to Kapitall’s Compare-o-Matic tool. This uses average analyst ratings sourced from Zacks Investment Research. Press play to see how the ratings have changed over time. If others, including insiders, are still buying the stocks in this list, you might see some short-term gains.

Forward P/E

The stocks in this list are all trading below a P/E ratio 15 and can seem undervalued. However, investors are pessimistic about the long-term profitability of some of these business models either from lowered guidance or increased competition. We screened these low P/E stocks for a forward P/E of over 15 which uses earnings forecasts as the denominator.

Business Section: Investing Ideas

The higher forward P/E indicates that expected earnings are shrinking quickly while share price remains the same. Office Depot (ODP) and Keynote Systems (KEYN) are both trading below book value and analysts haven’t destroyed these stocks yet. It might be possible to make a quick buck here if insiders are right and analysts hold sway.

But unless you are interested in checking these tickers constantly, it might be bet to avoid them all together. A wise investor would see little value or comfort in holding these companies to the next quarter. Those interested in shorting these troubled companies should take caution as well, insiders may be push up the price making it less profitable to cover positions.

1. Basic Energy Services, Inc. (BAS, Earnings, Analysts, Financials): Provides a range of well site services to oil and gas drilling and producing companies in the United States. Market cap at $472.31M, most recent closing price at $11.15. BAS has a P/E of 5.58 and a forward P/E of 15.37. Over the last six months, insiders were net buyers of 389,570 shares, which represents about 1.03% of the company’s 37.93M share float.

2. China Cord Blood Corporation (CO, Earnings, Analysts, Financials): Operates as a cord blood bank in China. Market cap at $204.79M, most recent closing price at $2.80. CO has a P/E of 10.74 and a forward P/E of 17.06. Over the last six months, insiders were net buyers of 375,000 shares, which represents about 2.79% of the company’s 13.45M share float.

3. Keynote Systems Inc. (KEYN, Earnings, Analysts, Financials): Provides Internet and mobile cloud monitoring solutions worldwide. Market cap at $228.01M, most recent closing price at $12.86. KEYN has a P/E of 5.44 and a forward P/E of 56.74. Over the last six months, insiders were net buyers of 561,662 shares, which represents about 4.31% of the company’s 13.02M share float.

4. Office Depot, Inc. (ODP, Earnings, Analysts, Financials): Office Depot, Inc., together with its subsidiaries, supplies office products and services. Market cap at $704.35M, most recent closing price at $2.47. ODP has a P/E of 10.21 and a forward P/E of 30.63. Over the last six months, insiders were net buyers of 6,916,980 shares, which represents about 2.94% of the company’s 235.00M share float.

5. Resolute Energy Corporation (REN, Earnings, Analysts, Financials): Engages in the acquisition, exploration, exploitation, and development of oil and gas properties primarily in onshore properties in the United States. Market cap at $503.17M, most recent closing price at $8.13. REN has a P/E of 12.41 and a forward P/E of 84.4. Over the last six months, insiders were net buyers of 1,006,418 shares, which represents about 2.75% of the company’s 36.54M share float.

6. SIRIUS XM Radio Inc. (SIRI, Earnings, Analysts, Financials): Provides satellite radio services in the United States and Canada. Market cap at $14.94B, most recent closing price at $2.89. SIRI has a P/E of 5.38 and a forward P/E of 28.5. Over the last six months, insiders were net buyers of 181,866,400 shares, which represents about 7.74% of the company’s 2.35B share float.