Tim Melvin

Stock quotes in this article:

sfy

tis

fbnc

It is not much of a selloff so far, as measured by the broad market. But as some readers pointed out to me quite strongly, some pockets of the market have taken a pretty good whacking in the past month or so.

Smaller stocks, materials, metals and energy-related names are among the sectors that have been banged up far worse than the S&P 500, so far. I have no idea if we keep selling off or if Jim Cramer is correct and Angela Merkel and Vladimir Putin kiss and make up and we renew the rally. That type of wild guesswork is above my pay grade. I can break out the tools of the trade and see if any top executives have cracked open the checkbook and purchased shares of their company in anticipation of a long-term rebound.

I focused on the top two executives of companies to track CEO and CFO buying. My own work and experience, as well as the academic research, has shown that when the CEO and CFO reach into their pockets and buy shares of the company they run, good things usually happen to the stock price in the next year or so. These two top executives should know more about the conditions, developments and expectations for their businesses.

In the past month there has not been a lot of top execs buying, but there has been some. And there are some companies that caught my interest on the list. One that leaps off the page to me is Swift Energy (SFY ). The company has some valuable acreage in Eagle Ford and has found a joint venture partner to help develop the fields. The recent earnings report was solid with a 24% increase in production, a 24% increase in adjusted cash flow and a 20% increase in net income when compared with the second quarter of 2013. CEO Terry Swift likes his prospects as he recently bought another 20,000 shares of his namesake for about $220,000, The stock trades at about one half of book value, so there is room for significant price improvement in this stock.

Orchard Tissue (TIS ) is not a classic value play, but it is a solid growth company that attracts very little attention from Wall Street. It makes basic things like paper towels, bathroom tissue and paper napkins. It sells in the southwestern region of the country to dollar stores, discount retailers and grocery stores. I consider Orchard to be a company in a really basic business that’s really well run. CEO Jeffrey Schoen thinks so, as he has purchased an additional 8,600 shares in the past month. Chairman of the board Steven Berlin also added 1,000 shares to his stake in the company. Insiders own almost a third of the outstanding shares, so everyone involved would seem to have a vested interest in improving the business and getting the stock price even higher. The stock is not cheap enough for me to be a buyer, but I still own a few shares bought back in 2010 and its up near the top of my buy-in-a-crash list.

First Bancorp (FBNC ) operates branches in North and South Carolina as well as Virginia. Like smaller regional banks, conditions have been steadily improving for the bank as bad loans are restored, restructured or foreclosed. Earnings for the first six months of the year rose by 44% at First Bancorp, with lower loan loss provisions the major driver of profit improvement. The bank has a sizable portfolio of loans covered under loss-sharing arrangements with the FDIC and has been seeing improvements in this portion of its loan book. It also had strong property sales of foreclosed properties along the North Carolina coastal areas where most of the covered assets were located. The stock trades right around book value and CEO Richard Moore likes what he sees at his bank. He just purchased an additional 4,630 shares to raise his stake to more than 94,000 shares.

Regardless of what the market may be doing, when the top two executives are buying shares of the companies they run it makes sense to pay attention. They know more about their company that any trader or analyst and when they speak with cash investors should listen.

At the time of publication, Melvin was long SFY.