Barnes & Noble Could Beat Bookstore Blues, Chief’s Stock Buy Suggests
Posted: December 01, 2015
Money talks. Actions speak louder than words. Therefore, actions involving money speak especially loudly.
That’s why it pays to keep an eye on what top corporate executives do with their money. If they invest in their own company’s shares, rather than buying (another) vacation home, that can be a meaningful, bullish sign.
At Barnes & Noble Inc. (BKS), founder and Executive Chairman Leonard Riggio recently spent more than $12 million to increase his stake in the bookstore chain. He bought 1 million shares in September and now owns 11.6 million shares worth about $152 million at the recent price of $13.14 a share.
Is Riggio unaware that the bookstore industry is struggling and that Internet sales have been eating bookstores’ market share for years? No, of course he’s aware. But he is making a businessman’s judgment that the stock is worth buying nevertheless.
I tend to agree. To me, Barnes & Noble looks attractively cheap at 0.17 times revenue and 0.74 times book value (corporate net worth per share). Granted, it is not cheap based on earnings because the company has been struggling for profits. But I believe the company can improve its profit picture in the next two years. And its balance sheet looks terrific, with no debt.
What about the Internet issue? Well, Amazon doesn’t completely own the online market for books. Barnes & Noble does a substantial Internet business.
A couple of directors have also bought shares this year, though in amounts far smaller than Riggio. In addition, some well-known investors have been nibbling at the shares. Among them are Paul Tutor Jones, Joel Greenblatt and Jeremy Grantham.
Southern Copper
The copper industry is struggling, and so is Southern Copper Corp. (SCCO). I have a sentimental fondness for this stock. I owned it some years back, when it was called Southern Peru Copper, and did well. So it caught my eye when I noticed that German Larrea Motta Velasco, the company’s chairman, has made a series of purchases this year, increasing his holding to 2,870,567 shares, worth $73.7 million at the recent price of $25.68.
Is his purchase timely? I am sorry to say that I doubt it. Commodity price cycles tend to be very long cycles, often lasting more than a decade. The price of copper peaked at about $4.50 a pound in January 2011 and has since fallen to just over $2 a pound. I fear it has farther to fall, which imposes a terrible damper on any copper mining company.
At the same time, I think Southern Copper is a good company, and I am more optimistic than most people about economic growth in the next few years, especially in the United States. Of all metals, copper is probably the most sensitive to the economic cycle. Therefore, I would suggest checking the stock every three months and accumulating it a little at a time if — and only if — the stock price hasn’t declined since the last checkpoint.
Track record
Beginning in 1997, I’ve written 36 columns about insider purchases and sales. I’ve tabulated the 12-month results for all those written from 1999 through 2014.
The 50 stocks that I recommended based on insider buying have outperformed the Standard & Poor’s 500 Index by an average of 6 percentage points.
The 12 stocks I said to avoid despite insider buying have underperformed the S&P 500 by an average of 15.3 percentage points.
Eighteen stocks in which I noted insider selling have matched the market, actually exceeding the index’s performance by 0.1 percentage point.
In addition, there were seven stocks for which I noted insider buys, but made no comment or an ambiguous comment. Those (embarrassingly) have soared, beating the index by 17 percentage points.
In my column from one year ago, I noted insider buys by five CEOs, but said I would avoid four of the stocks. The only one I recommended was Prospect Capital Corp. (PSEC), but it has declined 5.8 percent since, while the S&P 500 has risen 3.3 percent.
I was right about the “avoids,” though. Sonus Networks (SONS) is down 61.7 percent from Dec. 2, 2014, through Nov. 27. Jones Energy Inc. (JONE) is down 43.4 percent; Hertz Global Holdings Inc. (HTZ), 31.2 percent; and Air Products & Chemicals Inc. (APD), 1.9 percent.
Bear in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And the universal disclaimer: Past performance doesn’t guarantee future results.
I do not own the stocks discussed in today’s column personally or for clients.