Skip to main content

2 Disparate Companies With Insider Buying Interest in Common

Smart Global Holdings and Leaf Group have seen purchases of their shares by people in the know.
  • Author:
  • Publish date:
Comments

Equities are coming off their worst weekly performance since March as we start a new trading week. Third-quarter reports will continue to deluge the wires this week. However, investors' attention will be focused on the election Tuesday as well as rising Covid-19 cases here and abroad that have pressured several European countries into implementing another set of temporary lockdowns. I believe the election will be closer than most pundits predict and we will not know the winner on election night. I also hope we can avoid another round of shelter-in-place mandates that do far more harm than the disease.

I am well-prepared for any increase in volatility or continued decline in the markets. I have built up more than a 25% cash position in my personal accounts into the election and now have plenty of ammo to deploy at lower entry points should the recent hiccup with equities continue. One place I always look for new opportunities is in attractive small- and mid-cap stocks seeing recent insider buying. Here are a couple new names on my shopping list.

Let's start with Smart Global Holdings (SGH) . This small manufacturing company essentially customizes memory chips supplied by the likes of Intel (INTC) and Micron Technology (MU) into application-specific products for its end users.

A couple things stand out about Smart Global. First, its CEO just purchased more than $250,000 of its shares in late October. This was the first insider buying in this stock in over a year. Second, Smart Global's recent purchase of Cree got little notice in the market even as it was accretive and will increase the company's top line by nearly 40%. Prior to the Cree acquisition its business was already improving and the stock is cheap both on an earnings and price-to-sales valuation.

Next up is Leaf Group (LEAF) . This small California concern owns a portfolio of digital-first brands focused primarily on fitness and wellness and art and design; among its online properties are Livestrong.com and Society6. Leaf Group has been targeted by activists as it sells for a considerable discount to peers and they have accumulated about 40% of its shares and are far and away the biggest shareholders of the company now.

Leaf Group's business is heading in the right direction. Four weeks ago, the company reported third-quarter results showing a 50% year-over-year increase in revenue, the fastest quarterly growth Leaf Group has demonstrated as a public company. Leaf Group's market cap is about $160 million and it should produce $250 million in sales by fiscal 2022 according to the latest statements from management. Leaf Group has a solid balance sheet and has about $350 million in state and federal net operating loss carryforwards, which is an underappreciated asset, especially as the company transitions into a profitable concern in the coming years.

And those are two small names I recently have taken watch-item positions in that I will add to should markets continue their recent declines.

At the time of publication, Jensen was long LEAF and SGH.