It has been a fun week for the stock market. The selling has been pretty intense this week. The S&P 500 is down about 1% so far this week and over 3% for the past month. The sharp down move has caught a lot of people off guard and the pundits and prognosticators are once again debating the end of the bull market.
When the markets are like this, I try to keep my head down and ignore the growing noise levels lest I be tempted to join the prediction parade -- with the very predictable bad results. I do not know what the markets will do in the near term. and I am highly skeptical of anyone who claims to be able to make that call with any degree of accuracy.
What I can do with a certain amount of success is find stocks that are cheap and may have the potential to move higher over the next several years. I can increase my odds of success by focusing on those stocks where the folks running the company either have skin in the game or are stepping up to buy more shares of the company they manage as prices fall. On Thursday, I looked at some stocks with high insider ownership. Today I want to search for companies where insiders have been buying as the markets have weakened over the past month.
Cliffs Natural Resources (CLF) has been hammered over the past month. As iron ore prices have tumbled, the shares have fallen 46% in the past month. Nothing has gone right for the new management that recently took over the board in a proxy fight. To add insult to injury, Standard & Poor's just downgraded the company's debt to junk status. The company is considering asset sales, the dividend is almost certainly going to at least be slashed -- actually, it will probably be eliminated altogether to conserve capital.
I have held a position in the stock for some time and am now sitting on an impressive loss. Given the dire conditions and poor prospects, I was a little surprised to note that four directors have been buying shares in the past month -- they have almost as large a decline in their shares as I do! Therefore, I am hopeful that they have better knowledge of iron ore prices and that we will see an improvement in the price soon.
Titan Machinery (TITN) is one of the very few stocks that is up this week. Of course, that's offset by the fact that the shares have lagged the market this year and are down more than 20% so far in 2014.
Titan has a network of agricultural and construction equipment stores in the U.S. and Europe and business has not exactly been fantastic. A weak economy has led to a decline in sales and earnings and the company has posted a huge negative earnings surprise for three of the past four quarters.
The stock is now trading at just 80% of tangible book and value CEO David Meyer apparently thinks it's a bargain. Earlier this week, he bought another 90,000 shares of Titan stock to increase his already substantial holding in the company.
Insiders at community banks around the U.S. apparently think business and stock prices will be better over the next few years. In the past month we have seen buying at many of my trade of the decade favorites including ESSA Bancorp (ESSA), Westbury Bancorp (WBB), Franklin Financial (FRAF) and a host of micro-caps banks too small to talk about here. I am continually amazed by folks who tell me that the small banks are just too boring for them to own. I see nothing boring about the amount of money being made and, apparently, neither do the officers and directors who run them.
I have no clue what the stock market will do. In all honesty, I hope it moves lower, so I can put some cash to work. But I would not be willing to bet a nickel on my ability to predict that this will occur. I can keep my head down and look for those cheap stocks where management is putting additional skin in the game and then get my money in alongside theirs. I believe that will work out pretty well for me over the next several years.
At the time of publication, Melvin was long ESSA, WBB, FRAF and CLF.