Given that we are now exceptionally close to the supposedly much-needed 10% correction*, it is useful to use many different lenses right now to find opportunities. Typically I would turn to my quant model and start running down the list, but with the widespread selling knowing who is buying can be revealing knowledge. With the historically high volatility in the markets, many stocks across several different sectors have been whipsawed around, so another potential hunting ground for good values is the 52-week low list. Finally, while I’m not one to plagiarize ideas, reading up on the disclosures made by company insiders and well-known investors can often lead one to many previously unknown stocks that present compelling cases for being bought.

My philosophy on insider transactions generally places much more weight on insider buying than selling, under the logic that insiders might sell for one of many reasons (of which being negative on the stock is only one possibility) but insiders only buy because they believe doing so will make them money. At the same time, repeated and heavy insider selling can be hard to ignore; why would you invest your capital in a company where everyone in charge doesn’t want to? For a crystal-clear example, consider the case of Angelo Mozilo, CEO at Countrywide Financial. Looking at an insider transaction report for the company shows that just about every week, Mozilo would repeatedly dump millions of dollars worth of CFC stock, all while trying to convince the public that business at the country’s largest mortgage lender was just fine. Of course, “business is fine” typically isn’t synonymous with a Merrill Lynch analyst questioning your company’s solvency. Publicly being optimistic while privately selling millions of dollars of stock has gotten CEOs in trouble before, but I digress…

To give you an idea of what I’m looking at, I took the 25 highest ranked stocks from my quant model and looked through to see which ones had recent signs of insider buying. Only two stocks had any real insider buying: MicroStrategy (MSTR), a business software firm, has been quiet on the insider front for a few months before the recent 3,000 share purchase by a director - shares are 15% above their 52-week lows. Oil refiner Tesoro (TSO) also saw a director make a 10,000 share purchase last week - those shares are in the in middle of their 52-week trading range. Insider buying isn’t the only thing of note in the Top 25 today; electronics maker Lamson Sessions (LMS) received a buyout offer tonight from Thomas & Betts (TNB) for an all cash deal at $27/share, or a 37% premium to today’s close. The M&A wave is not dead yet, it is just important for the deals to make sense now and for the valuations to be reasonable.

Another item regarding a stock not in the Top 25 that I haven’t mentioned recently is Headwaters (HW). Earlier today the company announced CFO Scott Sorenson was stepping down to pursue another job and he would be replaced with the previous CFO, Steven Stewart. Headwaters is an embattled company that is facing much uncertainty given synfuel-subsidy phaseouts and fallout in the construction market, but I believe there is significant value to be found. Under Stewart, Headwaters grew into the billion-dollar enterprise it is today, and his return serves as a strong vote of confidence in the future strength of its diversified construction materials, coal products, and alternative energy businesses. Hopefully with his assistance, the company will be able to execute a much needed PR turnaround and give the shorts (who have 30% of the float sold short) reason to cover.

With the news out of Countrywide, both the put options on that stock - especially at the $5 strike - and the put options on XLF (the SPDR Financial Sector ETF) saw huge surges in volume. The apparent weakness in Countrywide’s business model is going to be a strong sticking point in the mind of this market and I expect financials are going to be under even more heavy pressure in the near-term. Consider some of the bigger names that comprise XLF, such as Bank of America (BAC), Citigroup (C), US Bancorp (USB), and Wells Fargo (WFC). For each of those names, one can point to a very successful investor currently buying shares. Citigroup, of course, has been the target of Eddy Lampert. The ESL Investments manager has been adding to his stake in Citigroup as shares have fallen to a 52-week low at $45. With BAC, USB, and WFC, Warren Buffett has been adding to his positions in each of those stocks. Looking at the all-around reasonable valuations and numerous positive catalysts that could materialize, I find it hard to take a negative long-term view of larger bank stocks. Bank stocks are a bit more complex to value than typical businesses, but an article devoted to one or more of those four companies is a good idea for the future…