Put five Fools in a room, ask them how they invest, and you’ll likely get five different answers. Some like growth, others value, or small caps, or dividends, or, well, you get the picture.
Yet, while our styles differ, we all want excellent, engaged managers running the companies we own. We like it even more when these managers are also owners — investors like you and me who, in trying times like these, are willing to buy as others sell. That’s why I write this column weekly.
The week’s buying
So which rich executives are buying now? Have a look, courtesy of our friends at Form 4 Oracle:
Company Closing Price 12/9/08 Total Value Purchased 52-Week Change Akamai Technologies (Nasdaq: AKAM) $13.96 $1,140,976 (64.2%) Global Industries (Nasdaq: GLBL) $3.33 $3,183,701 (85.4%) TBS International (Nasdaq: TBSI) $6.47 $902,828 (85.2%) Visa (NYSE: V) $53.53 $705,462 (4.9%)* Walter Industries (NYSE: WLT) $16.79 $201,085 (54.9%)
Sources: Fool.com, Yahoo! Finance, Form 4 Oracle.
*Visa began trading on March 19, 2008.
Can Akamai still deliver?
Talk about a crazy week. At the same time that industry watcher Dan Rayburn was reporting that longtime Rule Breakers recommendation Akamai had been haphazardly cutting prices, company co-founder Tom Leighton bought 100,000 shares.
Call it a bull versus bear showdown. So far, the bears are winning — just look at those returns! Those bears include CAPS investor Internettech, who predicted massive price cuts over the summer:
Both [Level 3 Communications (Nasdaq: LVLT)] and [AT&T] have recently deployed new working content management networks that are in place and will be getting customer wins happily with prices that are half of what Akamai charges. The difference is that they are both running global networks alongside the CDNs which Akamai does not. Moreover, they have deeper pockets to invest in the new faster, emerging hardware.
If Rayburn is right — if Akamai is relying on random price cuts to preserve market share — it’s a poor sign. Not that price cuts in general bother me. What’s troubling is Akamai’s apparent lack of pricing discipline.
Does that mean that you or I should sell Akamai in a panic? Of course not. The underlying business is performing far too well. Returns on invested capital are rising even as margins come under pressure — an excellent indicator.
What’s more, Akamai’s newer, high-margin businesses, such as application acceleration and ad delivery, aren’t easily duplicated. Roughly half of new customers were buying enhanced services in the third-quarter, Chief Financial Officer JD Sherman told analysts in announcing results.
Finally, if President-elect Obama gets his way, and 95% of Americans are given access to free broadband Internet, we’ll see an explosion of content that could substantially increase demand for CDN services. Emerging players and infrastructure suppliers could find themselves racing to catch a curl that Akamai, Level 3, and Limelight Networks (Nasdaq: LLNW) are already riding.
So, sure, be cautious. Fools always are. But don’t ignore the whole story, either. Leighton, a MIT professor, isn’t $1.1 million stupid. He’s buying for a reason.