Nejat Seyhun, a professor at the University of Michigan and author of the book "Investment Intelligence from Insider Trading," found that when executives bought shares in their own companies, the stock tended to outperform the total market by 8.9% over the next 12 months. Peter Lynch wrote that, while insiders might sell their shares for any number of reasons, they typically buy them for only one: they think the price will rise. Insiders are prevented from buying and selling their company stock within a six-month period; therefore, insiders buy stock when they feel the company will perform well over the medium to long-term.
When insiders pile on to buy a stock after a recent fall, I like to take a close look at the company to see if I should buy as well, as this could be a signal that the people who are the most well informed about the company think Mr. Market is providing a buying opportunity. This is what happened recently with Intel Corporation as shown in the table from Gurufocus below.
According to GuruFocus data, the CEO and five directors bought Intel stock last week:
| Insider | Position | Date | Buy/Sell | Shares | Shares Owned | Trade Price($) | Cost($1000) | Price change since trade(%) | Share ownership details |
| WEISLER DION J | Director | 2021-10-26 | Buy | 5,147 | 17,099 | 48.57 | 249.99 | +0.89 | 17,099 (Direct) |
| Yeary Frank D | Director | 2021-10-25 | Buy | 10,000 | 58,808 | 49.66 | 496.60 | -1.31 |
810 (Direct) By Family Trust:57,998 |
| WEISLER DION J | Director | 2021-10-25 | Buy | 5,015 | 11,952 | 49.85 | 250.00 | -1.69 | 11,952 (Direct) |
| LAVIZZO-MOUREY RISA J | Director | 2021-10-25 | Buy | 5,000 | 12,079 | 49.50 | 247.50 | -1.01 | 12,079 (Direct) |
| GOETZ JAMES J | Director | 2021-10-25 | Buy | 20,000 | 198,521 | 49.76 | 995.20 | -1.51 | 198,521 (Direct) |
| GELSINGER PATRICK P | CEO | 2021-10-25 | Buy | 10,000 | 219,750.40 | 49.94 | 499.40 | -1.88 | 219,750.402 (Direct) |
Intel's stock fell when Intel indicated that it will be spending an extra $7-$8 billion a year for several years and its gross margins will fall. The company is going through a transition under CEO Patrick Gelsinger, who rejoined Intel in February and is now focused on developing new technology and expanding manufacturing capacity. Intel has fallen several years behind Taiwan Semiconductor (TSM, Financial), which is now producing 5-nanometer semiconductor chips while Intel is still at 10nm. Intel looks like it is making a concerted effort to close the gap.
Companies like Apple (AAPL, Financial) and Advanced Micro Devices (AMD, Financial) design their CPU chips but use Taiwan Semiconductor to manufacture their chips. Taiwan Semiconductor, unlike Intel, is exclusively a fabricator (fab), i.e., it makes chips for others. Intel is a major chip producer of its own designs, but it is now moving towards being a contract fab as well.
Intel has robust cash flows and should be able to accommodate the incremental capex (capex is the difference between operating cash flow and free cash flow).
The balance sheet is in very good shape, as shown in the below chart:
According to the GuruFocus Value chart, Intel is modestly undervalued:
Intel's stock price is attracting the attention of several Gurus, including Bruce Berkowitz (Trades, Portfolio) and Al Gore (Trades, Portfolio), who started positions in the company in the second quarter. Seth Klarman (Trades, Portfolio) already owns a large position in Intel with almost 10% of his U.S. stock portfolio in the name. Michael Price (Trades, Portfolio) and Alan Fourier also have significant investments in the company. It will be interesting to watch the next round of 13Fs to see if these Gurus add to Intel now that the stock has become cheaper.
Intel is huge global company with immense talent and deep resources, and the semiconductor business is always changing. It's a fast-growing industry which can accommodate multiple large players. Look at Advanced Micro Devices, which was almost left for dead 10 years ago and now can do no wrong. Odds are good that Intel will be back. The company is currently launching its 12th generation CPU's (code named "Alder Lake"), which are expected to be competitive with the latest CPUs from Apple and AMD.
It will likely be a while before the company begins to realize its full potential, but the stock seems attractively valued at current levels, and insiders appear to agree, especially after they bought following the latest sell-off.
