Subscribe to Money Morning get daily headlines subscribe now! Money Morning Private Briefing today's private briefing Access Your Profit Alerts

Why Are Insiders and Hedge Funds Suddenly Buying This Stock?

As longtime Private Briefing subscribers know, insider buying is one of my favorite bullish indicators – especially on badly beaten down stocks.

And while registry-services player Group Inc. (Nasdaq: WWWW) isn't beaten down, it has taken subscribers on a pretty wild ride since Radical Technology Profits Editor Michael Robinson recommended it back on June 5.

Michael's timing was impeccable – as it usually is, I've come to learn.

After recommending stock to subscribers at $15.68 a share in early June, it zoomed as much as 26% to reach its peak in early July. It held most of the gains for a time and then sold off. As I wrote this just before the holiday, we still had a modest profit in the stock.

Michael's insights were just as timely on the downside, as I discovered. In one especially prescient call, he circled back with Private Briefing subscribers in very early August and warned that rising volatility was also boosting risk.

His advice: If the market gives you a double-digit profit on a stock in a very short holding period, don't be afraid to cash out and pocket the gain. The market immediately surged – as did volatility – which gave investors two months' worth of windfall profit opportunities.

And because he urged short holding periods, investors who followed his advice wouldn't have suffered big losses when the market sold off sharply in October.

(Check out the Aug. 6 column "How to Survive in a Moneyball Stock Market" to see his explanation.)

So when I discovered that two board members had made the first insider purchases in some time, I called Michael and asked for an updated analysis of the company's prospects.

As I told Michael, a filing with the U.S. Securities and Exchange Commission shows that Director Deborah H. Quazzo bought 7,100 shares at an average price of $14.09 each on Dec. 13 – an outlay of roughly $101,000. That same day, Director Philip J. Facchina bought 10,000 shares at $14 a share, for an outlay of $140,000.

In our 1998 book, "Contrarian Investing: How to Buy and Sell When Others Won't and Make Money Doing it," New York money manager Anthony M. Gallea and I determined that, to qualify as being noteworthy, insider purchases had to total $120,000 or more.

And the greater the number of participants, the more bullish an indicator it was.

As we said in our book:

  • Good: An officer purchases $120,000 worth of stock.
  • Better: Two insiders purchase $300,000 worth of stock.
  • Best: Six insiders purchase $400,000 worth of stock.

Clearly, the purchase falls somewhere between the "Good" and "Better" scenarios.

But another discovery I made could push it into the "Best" category.

In our book, Tony and I also mentioned that purchases by "knowledgeable outsiders" could be factored into an analysis. Those investors – informed institutional players such as Warren Buffett, or specialized hedge-fund players – were a step or two below insiders, but also weren't part of the uninformed crowd that's dominated by always-late-to-the-party retail investors.

That's relevant here, since another report that I read stated that Stamford, CT-based institutional money manager Columbus Circle Investors bought 840,000 shares of stock over the course of the third quarter – after having had none at all at the beginning of July.

For purposes of our "knowledgeable outsiders" analysis, I would say that Columbus Circle is a cut above the typical institutional player: It caters to rich folks, advises mutual funds, and provides investment counsel to endowments and foundations.

We don't follow Wall Street's lead in our research. But we do like it when institutional players pick up on our thinking after we've given you the chance to act upon it. After all, a flood of institutional money into a stock can move it higher, meaning you're using their capital to put profits in your pocket.

The consensus target price among Wall Streeters is currently $21.82 – roughly 39% above where the stock was trading when I wrote this just before the holiday.

Given this newfound interest by Wall Street, coupled with the brand-new purchases by insiders and knowledgeable outsiders, I was eager to hear Michael's thoughts on

"I have to say, Bill, that Group is starting to show some good chart action," Michael told me. "As we said earlier, the stock broke down in late October on the firm's reported losses of $21.5 million in the third quarter. That came as concern mounted about such Web-based firms as Facebook Inc. (Nasdaq: FB) and Groupon Inc. (Nasdaq: GRPN)."

However, since bottoming out on Nov. 15, the stock has rallied for gains of about 14.5%.

There's no doubt that's shares got a big lift on Nov. 16 when the company enteredthe Deloitte Technology Fast 500 list. That list, managed by Deloitte & Touche LLP, provides a ranking of the fastest-growing technology, media, telecommunications, life sciences and clean-technology companies (public and private) in North America.

Technology Fast 500 award winners are selected based on percentage-based fiscal-year revenue growth from 2007 to 2011.

Deloitte did not give the exact ranking for Group. But the mere fact that the company made the list is a positive.

And it bolstered what Michael views as an already-upbeat outlook for the stock.

"The price had recently traded above the 50-day line, which is a key test of support," Michael added. "In other signs of health, volume is rising as more money flows into the stock. The balance of power has now shifted more to the bulls."

Two other Private Briefing recommendations of Michael's also have done very well. eBay Inc. (Nasdaq: EBAY) is up 27% since he recommended it just days after he recommended And recent recommendation AMN Healthcare Services Inc. (NYSE: AHS) rose 4% in the first week following Michael's call.

In fact, Michael subsequently recommended AMN Healthcare to subscribers of his Radical Technology Profits (RTP) service. The vast majority of the time, it works the other way: Our experts recommend stocks to their subscribers, and I get to recommend some of those to you.

In this case, however, I'd asked Michael for some small-cap recommendations for you, and one of the ones he gave me was AMN. After we collaborated on the recommendation write-up, however, Michael took a closer look – and realized he needed to add it to his portfolio, too.

With obvious excitement, and then a chuckle, Michael confided that "you should see what that chart looks like now!"

Two other RTP stocks have Michael even more excited. To see why click here.

[Editor's Note: We recommend a "trailing stop" of 25% on all holdings.]

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK