Markets & Finance

The Stocks Insiders Buy


Standard & Poor's latest stock screen finds eight top-ranked names whose shares are being snapped up by company insiders

From Standard & Poor's Equity ResearchFrom Standard & Poor's weekly investing newsletter The Outlook

Many investors scan insider buying reports for clues to how management really feels about a company's prospects. Of course, many insiders buy when the stock valuation seems low in comparison with peers or the overall market. We wanted to find evidence of insider buying even when the stock does not appear to be undervalued.

To do so we screened for stocks ranked 5 STARS (strong buy) by Standard & Poor's equity analysts in sectors for which S&P chief technical analyst Mark Arbeter has a positive technical outlook. The stocks also had to have favorable insider buying activity based on stock purchases and sales over the last six months.

Our screen turned up eight companies, listed below. First we shine a spotlight on two of the companies.

Citizens Communications

We think rural telecommunications outfit Citizens Communications is on target to generate strong cash flow in 2008 to support its dividend, given its new promotions and cost savings from merger-and-acquisition activity. Following Citizens' third-quarter earnings report on Nov. 6, we raised our 2007 earnings estimate by 6¢, to 67¢ a share, and raised our 2008 estimate by 3¢, to 69¢ a share.

While we believe Citizens is attractive based on its total return potential, we lowered our 12-month target price by $1, to $16, based on an enterprise value multiple of 7.5 times our operating-cash-flow estimate, in line with its rural peers.

Risks to our recommendation and target price include a balance sheet that appears more leveraged than those of most of its telecom peers. We expect revenues of $2.32 billion in 2008, including $317 million from the recently acquired Commonwealth Telephone business, up from a projected $2.29 billion in 2007.

Glatfelter

We believe specialty-paper and filter manufacturer Glatfelter is poised for a sustained period of growth due to changes underway at the company. In 2006, Glatfelter added two major businesses, which we believe will expand its production capacity, reduce its per-unit manufacturing costs, widen its geographic presence, expand its market share, and provide opportunities for operating cost savings.

Initially, Glatfelter reduced costs slowly, but the program is now gathering momentum, as shown in third-quarter earnings per share that rose 87.5% from the year-ago period.

For 2007, we expect revenue growth of around 15%. Contributions from the big 2006 acquisitions should fuel this increase, but we also expect volume growth in the fibers business and pricing improvement in the book papers unit this year. In 2008, we see sales increasing about 5%. We forecast earnings of 80¢ a share for 2007, a 14% increase from 2006, and further improvement to $1.25 for 2008. Our 12-month target price of $18 is derived using a blend of our relative price-earnings (we used a peer group multiple of 20 times 2008 earnings) and discounted-cash-flow measures.

Risks to our recommendation and target price include further escalation of raw materials and energy costs and an unexpected downturn in demand and pricing for paper.

Stocks Insiders Like

Company (ticker symbol)

Price (11/15/07)

Citizens Communications (CZN)

$12.58

Corning (GLW)

$23.55

Fastenal (FAST)

$40.05

FedEx (FDX)

$101.41

FMC (FMC)

$52.22

Glatfelter (GLT)

$15.74

International Business Machines (IBM)

$103.38

Nicor (GAS)

$41.77


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