Buying the Hate

Written By Christian DeHaemer

Posted December 2, 2010

One way to find good stocks to buy is to troll through the insider buying information put out by the SEC.

There are a lot of traps to trading insider buying, and I wouldn’t suggest that you just buy stocks blindly…

Often times, a corporate owner will try to boost share prices by buying a small amount of shares in the hopes of selling into a higher price. But it can be a great place to start your research.

Not many people with expert knowledge in their industry will drop a half a million dollars if they think their company’s share prices are going down.

In the most recent list, insiders were buying companies in real estate, computer games, banks, and water companies.

Insiders are buying stocks the sheeple hate

Howard Hughes Corporation (HHC) Director R. Scot bought 10,000 shares at a cost of $420,000 on November 29th. Two other directors bought a combined 12,800 shares on November 24th.

The Howard Hughes Corp. bills itself as a real estate investment and development company. According to Yahoo! Finance:

They engage in the development and management of retail, commercial, and industrial buildings in North America. Its facilities feature residential, entertainment, mixed use, recreation, culture, and resort components. The company also develops single-family homes, town homes, and condominiums, as well as involves in office buildings and land developments.

Here is a company that has a market value of $1.59 billion. They have a negative 33% revenue growth and they lost $607 million over the last twelve months. They have $2.98 million in cash and $340.48 million in debt.

In other words, it’s a train wreck — at least on paper.

But then, why is Bill Ackman’s hedge fund Pershing Square Capital Management buying it like crazy?

As of November 9th, they own 13.8% of Howard Hughes Corp.


The company was spun-off of General Growth Properties in bankruptcy.

So why all the buying?

It could be because in their Master Planned Communities Segment, EBITA was up 273% in the last quarter. In the three months ended September 30th, EBITA increased $4.3 million.

Other segments were flat. The company is selling land in Columbia, Maryland, Las Vegas, Nevada, and Houston, Texas. They have high-end mixed use communities, such as the Ward Center in Honolulu and South Street Seaport in Manhattan.

If you believe that the high-end housing bust is at or near a bottom, you would have to think that this portfolio of properties is worth well more than HHC’s market value plus its debt…

Two billion for the whole lot seems pretty attractive — if not downright cheap.

That said, you can probably cherry-pick and pick this stock up around $38.


Citigroup Inc. (NYSE: C)

Everyone hates the banks. But the point of investing is to buy low and sell high.

Buy when blood is running in the streets, and sell when the talking heads claim “this time its different.”

This is how Crisis and Opportunity makes money, time and time again. We’ve banked gains like 52% in 8 days, 251% in five weeks, and 759% in ten months.

Despite what the doomsayers are telling you, America will still be here next year and the year after. Growth will return, jobs will come back, and the banks will be making money…

Check out these buys from insiders at Citi:

  • 11/29/2010 J. Grundhofer, Director – 25,000 Open Market Purchase, cost $103,750.00
  • 11/18/2010 M. M. Medina, Chief Executive Officer – 380,000 Open Market Purchase, cost $1,634,000.00
  • 11/18/2010 M.M. Medina, Chief Executive Officer – 162,100 Open Market Purchase, cost $695,409.00
  • 11/04/2010 A. J. Verme, Chief Executive Officer – 5,500 Open Market Purchase, cost $23,375.00

And check out the two-year chart:

C chart

That’s called an ascending triangle. There are more buyers than sellers and the stock is inching up. Once all of the sellers are exhausted somewhere in the $5 to $5.50 range, this stock will be off to the races.

Citi has a forward P/E of 9.63, quarterly revenue growth of 29.7%, and $767 billion in cash compared to $728 billion in debt. The company has paid off its TARP obligations.

The recent data suggests that jobs are growing. According to ADP Employer Services, in November, small businesses added the largest amount of workers in roughly three years.

Consumer confidence is at its highest level in two years. The personal savings rate has been trending upward for two years and is now at 6%. Eight million consumers have dropped their credit cards.

Housing has stabilized — I know this personally, as I can’t get a seller to come down to my bid (Case/Schiller is a trailing indicator).

The debt crisis in Europe is old news… China inflation is old news… These factors are priced in.

What’s not priced in is a rebound in jobs, pent-up demand by consumers with a healthier balance sheet, and the Fed printing money like mad.

Buy fear. Sell greed.

chris sig

Christian DeHaemer
Editor, Energy & Capital

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