6 Stocks Popular With Insiders

Amid an investor flight to quality, Bill Gates is loading up on garbage. The software magnate recently boosted his stake in Fort Lauderdale, Fla.-based Republic Services (RSG), the nation's third-largest trash collector.

Purchases were made between Aug. 2 and Sep. 29 by Cascade Investments LLC, which manages money on behalf of the Bill & Melinda Gates Foundation, a philanthropy vehicle for the Gates family and Warren Buffett. Cascade spent more than $250 million, increasing its stake in Republic to greater than 19%. Purchases were made at $30 to $35 a share. Today the stock fetches just under $20.

Gates has had more success with Republic than the recent dip suggests. Five years ago in this column I looked at Republic after an early string of purchases by Cascade. I half expected to find a hidden, exotic explanation as to why a Northwest technology guru was buying big into Sunbelt garbage; perhaps Gates had figured out how to turn banana peels into computer chips. What I found instead was strong cash flow, predictable returns and a business about unrelated as one can get to software -- diversification, in other words.

I concluded the defensive stock was worth a look for investors worried about a dip in the market, especially in technology stocks. Since then the broad-market S&P 500 index has fallen 12%, not counting dividends. The tech-heavy Nasdaq Composite has lost 16%. Republic shares have gained 22%.

On Oct. 13 Waste Management (WMI), the nation's largest garbage collector, gave up on a three-month struggle to buy Republic. Its final offer had valued the company at $37 a share, a price Republic managers argued was too low. Republic is now free to pursue a merger it agreed upon earlier this year with Allied Waste Industries (AW). The new company, the industry's second largest, will take the name Republic and operate out of Allied's headquarters in Phoenix.

Existing Republic shareholders might wish they had pocketed the $37 a share about now. Those who don't own shares might consider a purchase. The stock goes for less than 11 times earnings, a discount of around 20% to the broad market. It carries a dividend yield of 3.8% and a free cash flow "yield" of about 9%. The latter measure suggests dividend payments are safe. So does the nature of the waste-management business, where high start-up costs and complicated regulations keep new competitors out and pricing strong.

Republic is a steady but slow-growth company. Don't expect shares to make you the next, well, Bill Gates. But garbage will likely outperform during an economic downturn, and big, reliable dividends are just the thing for waiting out a bear market.

The stock turned up recently on a search for companies whose executives, directors or top holders have recently bought shares. Such "insider buying" means those closest to the company see reason for optimism, and is reason for the rest of us to do some further research. Have a look if you like at five other companies with recent insider buying, healthy dividends and ample free cash flow. Run your own search anytime using SmartMoney's stock screener.