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As I expected, the stock market has been behaving quite well over the last few months. I have been very busy and next month I will roll out an entirely new generation of investing information products to help you make better investing decisions. This month, I am going to focus on a very important investing topic that is rarely covered in enough detail: insider trading. I also have decided to start including links to information I cover so you can check on the information yourself. This way, when you read the newsletter you can actively participate. I hope you like this new feature that I will be adding to the Rogue Investing Report.

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Feature Article: The Icing on the Cake, Insider Buying
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Once you have located a company that looks promising, there is nothing like finding out that company insiders are actively buying shares of the company. Insiders are usually high ranking officers of the company, but they can also be angel investors, venture capitalists or just about anyone who already has a substantial stake in the company. With the advent of the Internet, finding out information about insiders has never been easier. In the stock of the month that I profile below, I have included links to show you where you can find information on insiders. When I review a company, I like to look at three things related to insiders:

  (2) Do the insiders already have a substantial ownership (greater than 10 percent for small companies and greater than 5 percent for large companies is a good rule of thumb) in the company?

  (3) Do the insiders plan to sell a large number of shares over the next several months?

If the answer to the first two questions is yes, I consider it a very positive sign that the company is likely to do well over the next few years. After all, who but company insiders would know better how the company is doing? By buying shares and having a high percentage ownership in the company, the insiders are essentially casting a favorable vote towards the future success of the company.

If the insiders are selling, especially if the company is large (greater than 5 billion in market cap), but they still own a substantial position in the company, then it is still usually a positive sign. However, if the insiders do not own a substantial position in the company and are selling, I view it at best as neutral, and possibly as negative if other news is negative. If the company is small (less than 1 to 2 billion in market cap) and insiders do not have a substantial position in the company, then I also view this as a potentially negative sign. Small companies need insiders who have a vested interest in the company because they usually do not have a bunch of talented people behind them, and the success of the company rests squarely on their shoulders. The following stock profile puts these principles to work.

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Stock of the Month: Orthodontic Centers of America (OCA)
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OCA is in the business of orthodontics -- specifically, helping orthodontists streamline their practices for efficiency. OCA is an interesting stock to study. First, OCA has had some trials and tribulations recently. After acquiring another company, things started to get rough. OCA lost some existing customers and got involved in some lawsuits. According to OCA's management, this was not unexpected. When it acquired OrthAlliance, OCA got the company at a discount and expected to encounter some legal problems.

However, most investors were not prepared for the legal problems and the stock went from more than $30 per share to $5 per share in about six months. Recently things have started to look better. Earnings appear to be holding up and the April 2003 P/E ratio of 5, along with an expected future growth rate of 13 percent, got my attention. When I started looking at the company, some pleasant surprises occurred. First, insiders have been buying huge amounts of the company stock. Also, the company has been actively buying back shares of the company stock. When I looked further, insiders also owned a substantial percentage of the company. Here are the links to the insider information so you can look for yourself:

The figure 15.98 percent represents the ownership percentage by insiders.

Overall, this stock is not for the faint of heart and I would not recommend it for your daughter's college fund or your grandmother's retirement. But the insider buying is impressive and the company does look very cheap according to most financial benchmarks.

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Real Estate Investing
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I think the most impressive thing about real estate investing these days is the incredibly low interest rates. Mortgage rates are now at 45-year lows and appear to be going still lower. My guess is the Federal Reserve will lower interest rates one more time. If you have not refinanced yet, think about it seriously, especially if your current interest rate is greater than 1 percent higher than the going rate. Or if you have a 30-year loan, consider going to a 15-year loan or a 10-year loan. It may take another 45 years before we see interest rates this low again.

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Disclaimer: There are no guarantees in investing. I make no assurances regarding the investment information presented in the Rogue Investing Report.

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