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Go With Those in the Know

When a company's corporate officers are buying its stock, that's a good sign.
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The year was 1964. Dobie Gray was singing about being "in with the in crowd." It was a good idea back then. It's still pretty sage advice today when thinking about investing. 

Nobody knows a company's true value better than the people at the control panel. Poor stock price action often scares away retail traders. The public may not feel confident in their assessment of what those shares are worth. Corporate officers and directors, though, are privy to all data, including non-public information.

When officially designated insiders start buying on the open market, it's a very good sign. DDR Corp. (DDR) , a REIT, got a new CEO last August. He's been divesting low-ROI properties and acquiring better-performing assets. Funds from operations (FFO), the preferred measure of REIT performance, has been relatively steady.

Since 2011, quarterly dividends have increased from $0.055 to $0.19 per share. At Monday morning's quote of $12.50, DDR now provides a tempting 6.08% current yield.

Fifteen insider buys were disclosed since Aug. 23, 2016. The most recent four purchases took place last month, at prices ranging from $12.45 to $13.47 a share. There were zero insider sales reported during the previous seven months.

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DDR's trading history suggests these insiders know what they're doing. The best entry points since 2011 (green-starred below) occurred at valuations of 10.1x to 13.4x FFO. Yields at those times varied from 2.34% to 4.69%.

Monday's price to FFO ratio was the best since early 2011. DDR's better-than-6% yield is the highest ever available on this REIT.

When the mood was right, and DDR was in favor with investors, it peaked (red-starred) with price/FFOs at 15.8x to 17.6x. Annual share price peaks ranged from $15.30 to $20.40 during every single calendar year since 2011, including 2017 year to date. 

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A simple regression to a more typical valuation could send DDR back to above $16, more than 30% higher than DDR's present quote. That's a conservative target, not an upper limit.

Option sellers were able to pocket $1.11 per share for the at-the-money Oct. 20, 2017, expiration $12.50 put. Put writers were fetching $2.85 for the more aggressive October $15 strike, leaving them obligated to buy at a net price of $12.15 per share, if exercised later. 

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Future stock market action can never be guaranteed. I can say for sure, though, that DDR hasn't changed hands as low as either of those break-even points for even one day during the past five years.

Get with the program. Join the "in crowd" by owning DDR shares, or shorting DDR puts. This REIT's sale pricing is likely to turn out to be a limited-time offer.

At the time of publication, Price was long DDR shares and short DDR puts, although positions may change at any time.