Blairsville, Ga., is the headquarters of United Community Bank Inc. (UCBI).
If you don't live in the Southeast, most likely you haven't heard of it. United Community operates a little more than 100 branches in parts of Georgia, North Carolina, South Carolina and Tennessee. Last year, it had revenue of $302 million.
I mention United Community because three directors of the bank have bought shares on the open market since the beginning of March. Thomas Richlovsky bought 5,000 shares at $15.25 each in mid-May. Cathy Cox and Robert Blalock made smaller purchases, 325 and 224 shares respectively.
These are not earth-shaking purchases, but they drew my attention to United Community, and I noticed a few other things about it that I like.
It is followed by only a few analysts — a good sign, because it leaves room for the stock to be discovered by more. The analysts expect earnings to grow about 13 percent next year.
The stock price is reasonable at 15 times this year's estimated earnings. The official price/earnings ratio based on the past four quarters' earnings is even lower, between 3 and 4. But one shouldn't put much emphasis on that, as it reflects a fat tax credit received last year.
Also reasonable is the ratio of United's stock price to book value (corporate net worth per share), at 1.3. This stock may not set the world on fire, but it seems like a good value.
Old Republic
Another stock I like is Old Republic International Corp. (ORI), a Chicago insurance company dating to 1887. It offers, auto, home, mortgage, workers compensation and commercial policies.
A couple of directors have purchased shares lately.
This is a slow-growing company — the adjective “sleepy” might be fair. But the stock is so reasonably priced that I think gains are likely. And the dividend is attractive, with a yield of more than 4 percent.
Old Republic shares trade at 1.2 times book value, 0.8 times revenue and eight times recent earnings. Those are the types of low multiples that indicate the market expects little. If the company delivers a little more, the stock could jump nicely.
Insider guidelines
Today's column is the latest in a series of columns about insider purchases and sales. I have written 30 such columns. The results add to the evidence from academic studies that it is worthwhile to pay attention when insiders buy or sell their own company's stock.
All officers and directors of public companies are required to report their purchases and sales to the Securities and Exchange Commission within two days of the transaction. So are major shareholders, defined as owners of at least 10 percent of a company's stock.
The academic literature suggests that purchases and sales by chief executive officers and chief financial officers are more predictive than those by other officers and directors. Generally, buys have more predictive value than sells.
I have tabulated the results for my columns on insider purchases and sales from the beginning of 1999 through June 2013. I don't calculate the results for columns written less than a year ago because I generally have at least a one-year horizon when I recommend a stock.
Performance
There were 41 stocks for which I noted that insiders were buying and added my own buy recommendation. These have beaten the Standard & Poor's 500 Index by 11.3 percentage points, on average, in the 12 months after they were selected.
For five stocks, I noted insider buying but nevertheless said I would avoid the stock. These have underperformed the S&P 500 by 12.9 percentage points.
Now comes the embarrassing part. For eight stocks, I noted that insiders were buying but made no recommendation or an ambiguous comment. These eight stocks have beaten the index by 23.2 percentage points.
Finally, there were 17 stocks in which I took note of insider selling. These stocks trailed 2.8 percentage points behind the index.
Obviously, insider selling is not a death knell. When insiders say they are selling to diversify, or pay college tuition, or fund a divorce, sometimes they are telling the truth. On the other hand, the results hardly portray insider selling as a positive sign.
Bear in mind that the performance of my column recommendations is theoretical and doesn't reflect taxes or trading costs. It should never be confused with the results I achieve for clients with actual portfolios. In addition, past performance doesn't predict future results.
John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. He can be reached at jdorfman@thunderstormcapital.com.
