Don't panic, buy smart with Deere and Navistar
Follow the insider money by accumulating shares of both these companies before the Santa Claus rally begins.
By Marc Courtenay
Is this market correction, like Yogi Berra would say, "deja vu all over again"? It's an opportunistic time for pension funds and investors of all sizes to reload, repurchase and prepare for good fourth-quarter total return results.
Although no one can predict for sure whether this selloff will get worse before it gets better, our senior colleague and the honorary President of "Cramerica," Jim Cramer shared with us Thursday some reasons why mindless selling at this point is not a sound idea.
His five-point thesis is as follows:
1. We are very, very oversold and people are getting very negative. We all accept that we are going down and many are taking action.
2. Many stocks will be impacted when we go over the fiscal cliff. Notice I said "when" because unless politicians rise above, we are going over it. But other stocks, international stocks with bases here that sell soft goods that make them buyers of commodities, will do well and they need to be bought into the weakness.
3. Everything in the end gets discounted, meaning that we can adjust to anything and when we get there any new negatives won't mean much. But a new positive or a deal will send us soaring.
4. The new taxes and spending cuts, while draconian, will not be the end of the world for the big secular growth stories out there, including health and wellness, as well the desire for a bargain.
5. Plenty of companies have the power to raise dividends to where even the after-tax the returns are far superior to bonds.
These make good sense to me, and I've been an investor and financial researcher for going on four decades, which is amazing since I'm only 49 years old (OK, I'm shaving off a few years, but Jim's five points are rock solid).
Apparently there are some prominent company insiders who see this market correction in a positive light and have been using it to purchase even more shares of the companies they direct.
Take Navistar International (NAV) for example, which by coincidence has a symbol which is used as an abbreviation for the term "net asset value." Does NAV have some locked up NAV waiting to be unveiled?
It's clear this leading manufacturer of commercial trucks, buses, RVs, defense vehicles and engines, which is selling closer to its 52-week low of $18.17, has some wealthy insiders and activists who think its shares are well worth owning.
Director Mark Rachesky purchased 1,598,000 shares on Oct. 24 at $18.75 per share. This brings his jaw-dropping total position in the stock to more than 10.8 million shares. If the stock moves up to $20 this means Rachesky will directly or indirectly own $216 million worth of NAV shares. Now that's what I call conviction!
Then on Oct. 25, world-famous activist Carl Icahn bought almost 1,595,000 shares at the same price. That's a transaction worth $29.9 million and added to what he owned already, bringing his total owned to nearly 12 million shares!
In fact, 38% of the outstanding shares of NAV are now owned by insiders. Institutions are onboard NAV as well. Franklin Resources (BEN) alone owns almost 19% of the outstanding shares.
That means BEN owns more than 12.9 million shares. If you're good with math you know that represents over $258 million when the share price reaches $20. On Thursday, Nov. 15 NAV closed at $19.76.
NAV will report their latest quarterly earnings-per-share results on Dec. 17. Analysts are estimating a year-over-year loss of $1.08, compared to an earnings-per-share (earnings per share) gain of $3.37 gain in the year ago quarter. The company has sales growth problems too, with quarterly revenue estimated to be down over 26% from the same quarter a year ago.
So why would anyone in their right mind buy NAV? When company insiders have so much at stake and low-pain-tolerance activist investors like Carl Icahn are also heavily invested in the company, some positive announcements and changes are probably forthcoming.
Icahn has been known for breaking up companies or forcing companies to sell off their most lucrative parts, like he's done recently with Chesapeake Energy (CHK).
For investors who seek less uncertainty and want to invest in a company that is already doing well, Deere (DE) may be the better choice. (DE announces its latest quarterly results on Nov. 21.)
Warren Buffett's holding company reported that as of Sept. 30, it owned a total of 4 million shares of DE, which provides products and services primarily for agriculture and forestry worldwide. Buffett likes companies that pay dividends, and DE has a 2.15% yield-to-price as of Nov. 15.
That represents a conservative payout ratio of 23% of earnings. From a value standpoint, DE has a low forward (1-year) price-to-earnings ratio of 10 and a low price-to-earnings-to-growth ratio of 1.10.
For the Nov. 21 earnings confessional, analysts are estimating around a 16% increase in quarterly earnings per share and close to a 12% increase in sales revenue. The chart below shows why DE is an attractive investment.
So remember before you tighten your stop losses too tight, that the "Big Players" are buying companies with either great intrinsic or potential value like Navistar or solid earnings per share growers like Deere.
Both have bright futures, but Deere's success strategy is so much more transparent. Investing by following the company insiders' example and buying what the smart money is buying often pays off.
As of the time of publication the author held no positions in any of the companies mentioned.
More from TheStreet.com
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The apparel chain takes a hard hit after blaming the weather for its quarterly sales decline. But cold temperatures don't explain the drop in full-year sales as well.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.