2 Stocks Insiders Are Buying Now
Ever wondered what truly signals a company's potential? While countless metrics and analyst reports flood the market, there's one indicator that often cuts through the noise: insider buying. When the very people running a company – the CEO, CFO, directors – start buying up shares of their own stock on the open market, it's a powerful statement. They have the deepest understanding of the company's health and future prospects, and their actions speak louder than any press release.
Today, we're diving into two intriguing companies that have recently seen significant insider buying activity: ConAgra Brands (CAG) and CarMax (KMX). Despite recent headwinds, these insiders are putting their money where their mouths are, suggesting these stocks might be undervalued gems waiting for their moment to shine. Let's explore why these moves are catching the attention of seasoned investors!
Think about it: an executive might sell shares for a myriad of reasons – buying a new house, diversifying their portfolio, or simply needing cash. But there's usually only one compelling reason for them to buy more shares of their own company's stock, especially if they're already compensated with shares: they believe the stock is undervalued and poised for future growth.
This isn't just theory; it's a fundamental principle of market psychology. When insiders, who possess non-public information and a deep understanding of operations, are willing to invest their personal capital, it sends a strong message to the market. It suggests that despite any current challenges or negative sentiment, there's an underlying belief in the company's intrinsic value and its potential for a turnaround. Of course, it's crucial to remember that insider buying is just one piece of the puzzle, but it's a very significant one that warrants further investigation.
ConAgra Brands (NYSE:CAG) has had a rough ride, seeing its stock crater close to 58% from its early-2023 peak. This kind of drop can make many investors nervous, but it's precisely when some insiders, including directors, have reportedly been stepping in to buy more shares this month.
Why the insiders are buying:
- Historically Depressed Multiples: The stock's significant decline has brought its valuation to levels not seen in a while. With a robust 7.74% dividend yield and a trailing price-to-earnings (P/E) of just 9.8 times, CAG looks like a classic value play.
- Strong Brand Portfolio: ConAgra owns a powerful lineup of household names, from Hunt's and Chef Boyardee to Slim Jim and Healthy Choice. These are brands with strong consumer recognition and loyalty, providing a solid foundation even in challenging times.
- Recovery Potential: While the company faces headwinds like reduced consumer spending on snacking and the emerging GLP-1 drug trend (which could impact food consumption patterns), management is likely working on strategies to adapt and reignite growth. Insiders might be seeing early signs of this turnaround.
For contrarian investors, CAG stock at multi-year lows, coupled with insider confidence, presents a compelling "buy the dip" opportunity. While the payout ratio for the dividend is getting stretched, the dividend itself is generally considered secure, adding to the appeal for income-focused investors.
Another name that has seen a dramatic fall from grace is CarMax (NYSE:KMX), shedding over 71% of its value from its peak. This $6.2 billion company has been hit hard by lower used car sales, a direct consequence of a challenging macro environment. Yet, here again, insiders are reportedly scooping up shares, signaling a belief that the market has overreacted.
Why the insiders are buying:
- Dirt-Cheap Valuation: Trading at just 12.4 times trailing P/E, KMX's multiple is significantly depressed. Insiders likely see this as an incredible bargain, especially given the company's market position.
- Cyclical Market: The used-car market is inherently cyclical. While it's currently in a slump, it won't stay depressed forever. Insiders might be positioning themselves for the inevitable rebound, understanding that current low expectations offer significant upside potential.
- Operational Efficiency Efforts: In the interim, CarMax is focused on enhancing operating efficiencies and preparing for the next market upswing. These internal improvements, combined with a future market recovery, could fuel a strong rebound in shares.
The current macro environment is certainly no friend to used auto retailers, but thinking this market will remain depressed for the long haul might be a mistake. As investors, keeping an eye on potential share buybacks by the firm itself, alongside insider purchases, could further reinforce the bullish case for KMX.
Q2. What other factors should investors consider alongside insider buying when evaluating a stock like CAG or KMX?
A. While insider buying is a strong signal, it's crucial to conduct thorough due diligence. Consider the company's financial health (balance sheet, cash flow), competitive landscape, industry trends (both positive and negative), management's long-term strategy, overall market conditions, and traditional valuation metrics (P/E, P/S, dividend yield, debt-to-equity). Combining multiple data points provides a more comprehensive investment thesis.
As we head into the end of the year, these two names could represent compelling opportunities for investors willing to take a contrarian view and do their homework. Remember, no single indicator guarantees success, but when insiders are betting big on their own companies, it's definitely a signal worth paying attention to!