Trading with Insiders

Ten years and negative 30% ago, we envisioned a gilded age of utopian wealth and unlimited affluence.  Now the “Me “generation with deficient Roths and 401(k)s is regretting its narcissism, its thirty years of credit cards and contraceptives, because it is now being saddled with tons of debt after the double bubble and it has had insufficient progeny to fill the tax rolls. We need immigration to survive, to avoid speaking Mandarin as a second language. We see the future as Greece’s and Spain’s failed socialism or Japan’s 20 years of asset & coincident population deflation. Thank you, “Sex, Drugs & Rock ‘n Roll!” Immigration is the medicine as always for the USA. Someone is knocking at the door . . .Let ‘em in. Let ‘em in.

The G-7 needs to finance the new wave of Third World global consumption or be doomed to derivatives and extreme leverage. Too big to fail and the misallocation of capital (now significantly destroyed) to our financial behemoths and their artificial growth powered by leverage and derivatives has stultified capital formation in the U.S. since the nineties. Capital, since the demise of Glass-Steagall, has fed speculation in CDs and insurance to hedge against speculation rather than its proper purpose of financing IPOs and VC — the source of real growth.

Ah but I digress. 

Back to reality. 

A perfect storm of negative news ravaged the market in May. The trend may be changing, as China posted impressive trade data last week, consumer confidence up-ticked in May despite the elements, and the NYSE & Nasdaq are implementing new single stock circuit breakers to prevent another flash crash.  Meanwhile, our insider ratio has registered its most bullish reading since last July 7th when the S&P stood at 869, prior to a 40% run up to its recent peak of 1219 in April.  We are breaking out rally caps and Maalox. 

“Through its subsidiaries, CNO engages in the development, marketing, and administration of supplemental health insurance, annuity, individual life insurance, and other insurance products for senior and middle-income markets in the United States. The company operates in three segments: Bankers Life, Colonial Penn, and Conseco Insurance Group.”

A near-death survivor from accounting scandal of the 90s (am I dating myself?), CNO is undergoing a shedding of its old name, CONSECO ( not Jose but equally jaundiced) to move out of its old shadow. But it’s still suffering from long memories of street analysts. CNO trades at a huge discount, nearly 50%, to the insurance composite, based on P/S and EV/EBIDTA. Director David Zweiner, a true believer, increased his stake by over 350%. Fool me twice?

“Through its subsidiaries, XL provides insurance and reinsurance services to industrial, commercial, and professional firms, as well as insurance companies and other enterprises worldwide. The company operates in three segments: Insurance, Reinsurance, and Life Operations. The Insurance segment offers risk management products, including property and casualty insurance programs that comprise umbrella liability, products recall, workers’ compensation, property catastrophe, and primary master property and liability coverage; and specialty lines products, such as professional liability, environmental liability, aviation and satellite, marine and offshore, equine, and other insurance coverage.”   

Can you feel the BP exposure? I don’t even need to check.  Street analysts are warming up to XL’s prospects with two of them hiking 2010 estimates and one hiking his 2011 numbers.   Perhaps Obama can arm-twist BP to pony up the bulk of damages, letting reinsurers like XL off easier than usual. One insider doubled his stake in May. XL has $5b (or its market cap) in cash and traded 4.5x EV/EBIDTA.  XL trades at 20% discount to its group average book value.

“Through its subsidiaries, TDW provides offshore supply vessels and marine support services to the offshore energy industry through the operation of fleet of offshore marine service vessels. It offers services to support various phases of offshore exploration, development, and production, including towing of and anchor handling of mobile drilling rigs and equipment; transporting supplies and personnel; and assisting in offshore construction activities.”

TDW is down over 20% since Gulf Spill Day. Gulf of Mexico activity is down 18% from -07 prerecession levels, and now accounts for only 8% of revenues and 3% of operating income. Venezuela’s Chávez levied a much bigger hit, snatching away 11% of TDW’s fleet in ‘09.  Two insiders recently increased positions by 100%, at $43, in late May; one analyst hiked his 2011 eps estimates. TDW trades at 6x EV/EBIDTA and 15% discount to book value. 

“Through its subsidiaries, JMP operates as an investment banking, asset management, and corporate credit management company in the United States. The company provides various investment banking products and services, such as capital raising, mergers and acquisitions transaction, and other strategic advisory services to corporate clients. It also offers sales and trading, and related brokerage services to institutional investors.”

That’s right, JMP, not JPM (for JP Morgan) its much bigger adult brother — what your dyslexic broker bought by mistake. This mini-cap, created in the image of Goldman Sachs, was too diminutive to delve into the quagmires that nearly (should have) destroyed its larger brethren. JMP doesn’t look particularly cheap to the untrained quant, but four recent insiders bought at $6.50-$8.30, and one analyst hiked his 2011 estimate. It may make a nice dance partner for a mid-major like Stifel Financial (SF).

“FCS designs, develops, and markets power analog, power discrete, and certain non-power semiconductor solutions worldwide. Its products are used in consumer, communications, computer, industrial, and automotive products for applications, such as power conversion, regulation, distribution, and management.”

FCS is possibly the oldest tech stock on the planet, incepted before tech went west, witness its Portland, Maine headquarters. To wit from FCS homepage: “In 1958, Fairchild developed the planar transistor and with it a new industry was born.” Analysts have hiked eps estimates up 20% for 2010 & 2011 over last 90 days. At 0.86 P/S and 1.09 P/B, FSC trades at a 30-40% discount to the 2nd oldest tech granddaddy NSM.