In analyzing smaller companies, in particular those that have not yet achieved commercial success, comprehensive analysis requires attentive monitoring of the “buys and sells” of the officers and directors personally owned shares. Yes, their personally owned shares! We comment below on the notable amount of shares bought by the officers and directors of Cartier Resources, Niogold Mining and Yorbeau Resources.

While general overview informational type research on most common stocks is readily available on the internet, thorough “buy/sell” comprehensive research for the majority of publicly traded companies does not exist. And it seems that there is less of it today. We estimate that perhaps fifteen percent of companies have comprehensive coverage in Canada and the United States. The bottom line is that research coverage is very expensive for brokerage houses and banks to engage in. But investors can put the odds in their favor by taking an extra step of monitoring the insider buys and sells.

Since the amount of available research is limited for most companies, the actual purchases and sales of companies’ shares by its officers and directors can be a key indicator of value. Unfortunately, with such limited research coverage today, for some companies, insider transactions is the only research method available.

We monitor the insider transactions of the officers and directors (insiders) daily in stocks that we follow and search for stocks that we find have notable insider buying activity. If we are favorably inclined in companies that suddenly have insider selling of size, we take note and try to determine if it could justify a change in our outlook.

As you may know, the officers and directors must report any buys and sells of their personally held shares within two days of the transaction. Failure to report any transaction is illegal and will lead to prosecution.

While the large industrial stocks have reported some of the largest dollar value of stocks sold by insiders in history during the past six months, in the mining sector, we find consistently large purchases by officers and directors indicating that they believe that their shares are quite undervalued.

Faites ce que je fait pas ce que Je dis
We saw last week that Philippe Cloutier of Quebec based Cartier Resources bought 70,000 shares of Cartier symbol ECR at from .075 to .08 per share. We also recently saw that he had purchased 100,000 shares in August at a price of .13 per share. Going back several years, we found that he had bought Cartier shares at prices that were substantially higher; we also found that he had never sold any Cartier shares. While not a timing tool in this case, insider purchases may be interpreted as their perception that value lies in their company.

Since we are still in a bear market in mining stocks, many of them seem to be “on sale”. We see numerous companies that have had noteworthy insider buying recently. Two other Quebec exploration companies with consistent and very large insider purchases over the past two years are Niogold Mining symbol NOX and Yorbeau Resources symbol YRB. We will be updating our insider analysis regularly as our research has suggested that over the last two years, many mining stocks have been in the process of finishing major price bottoms.

The fact is that you can’t change human nature. In our view, some of these stocks offer significant opportunities for substantial capital gains; but history shows that very few investors will take advantage of such cheap prices.