5 stocks insiders bought in the blowoff

By Michael Brush

Sure, last week's sell-off destroyed about $3.1 trillion in global stock-market wealth. But you won't find many corporate big shots who believe the recent market sell-off actually reduced the value of their businesses.

So you'd think they'd be buying the stock of their companies at the marked-down prices, right? Well, some did and some didn't. And knowing which ones did can provide some very useful insight for smart investors.

To be sure, not all the numbers are in. Typically, you need to watch insiders for a few weeks to understand how they have reacted to a market correction, says seasoned insider watcher Ben Silverman of InsiderScore.com. But insiders at several companies -- as well as some influential shareholders -- already have stepped up to make big purchases, and I don't think you need much time to figure out what that means.

Here's a look at five companies with the most significant insider buying in the recent market meltdown.

1. Citigroup

The recent market disaster has wiped out all the gains that Citigroup (C, news, msgs) shares saw in early December, when the stock rallied on rumors that the bank could be split up. That gives you another chance to get a decent price on what could be a promising turnaround play.

On the day the market plunged 416 points, Citigroup co-president of corporate and investment banking, Thomas Maheras, didn't waste a second to add to his already-large holdings in the stock. Maheras bought a cool $3.8 million worth, or 75,000 shares, at an average price of $51.07 on Feb. 27. That's a big purchase, and telling, because Maheras had a large position to begin with. He already owned over 2.3 million shares, plus options to buy about 950,000 shares, according to InsiderScore.com. Maheras must be downright bullish to be adding to such a large position.

The biggest potential catalyst is that Citigroup chief Charles Prince is under a lot of pressure from shareholders, including Saudi Prince Alwaleed bin Talal, to take some drastic measures to boost the stock. Prince has responded with a management shake-up -- the bank recently hired Gary Crittenden from American Express (AXP, news, msgs) to be finance chief.

But more-drastic measures may be in store. "If Citi doesn't start to show better growth in 2007, Prince could come under greater pressure from shareholders, some of whom have already started to murmur about the need to break up the conglomerate," says Craig Woker, who covers the stock for Morningstar (MORN, news, msgs). They may also call for a broader management shake-up.

Another plus for Citigroup is that it gets almost half of its profits outside the U.S. -- so it has decent exposure to more rapidly growing economies around the globe. Here's third reason to buy the stock: It pays a 4.1% dividend yield, and it has the highest grade for dividend "quality" offered by Standard & Poor's -- meaning it has the financial strength and track record to keep increasing that dividend. That's one reason Kelley Wright of Investment Quality Trends thinks Citigroup is a decent buy here. "We've got a pretty good idea this company will return value to shareholders," says Wright, whose newsletter picks have produced roughly 12.7% annual returns over the past 10 years as of the end of February.

2. Consolidated-Tomoka Land

Don't worry if you've never heard of Consolidated-Tomoka Land (CTO, news, msgs), a former timber company that Wall Street mostly ignores. The company is easy to get to know, and you'll be glad you did. Here's the deal. Tomoka has 1.2 million acres around Daytona Beach, Fla., that are probably worth more than the company's market capitalization, says David Winters, a portfolio manager at Wintergreen Advisors. That means if you buy the stock, you get Tomoka's commercial real estate businesses "for free." More importantly, you'll profit from any appreciation in the value of its Florida holdings as Daytona Beach continues to grow.

Winters believes that's what's in store as Daytona Beach expands. "It looks like an interesting undervalued asset play where time is our friend," he says. "We think there is a lot of long-term potential here." Winters was still buying shares of Tomoka near its 52-week highs at $79.40, the very day before last week's meltdown. Then as the stock retreated towards the mid-$70's in the mayhem, he bought another $1.3 million worth at average of $77.15 on March 1.

Why listen to Winters? After all, he isn't part of Tomoka management. But he does own more than 10% of Tomoka, meaning he has to report his purchases to market regulators. His interest in Tomoka is worth following for two reasons. First, Winters has a big enough position to influence Tomoka management -- and he plans to do so by getting a rep on the board. Second, Winters' brand of shareholder activism seems to pay off. His Wintergreen Fund (WGRNX) returned 20% last year, four points more than the Standard & Poor's 500 Index ($INX).

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