Should you be buying Leighton shares?

The biggest shareholder has been buying, and this Fool thinks it could be a good idea.

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Leighton Holdings (ASX: LEI) has been in and out the media for allegations of bribery and misconduct in the past three weeks and its share price has taken a beating. It describes these issues as being sensationalised by the media.

To this Foolish investor, the light bulb came on when the company's major shareholder, Hochtief, announced it had taken the opportunity last Friday to up its stake to 56.52% of  all available shares. At the time they were purchased, the shares were trading at a discount when compared to their price prior to the Leighton media article reported by Fairfax.

German-based Hochtief, which is owned by Spanish construction group ACS, said it intended to purchase more shares "subject to prevailing market conditions" according to The Australian. The recent price drop was the perfect opportunity.

The potential for ongoing weakness

Damaged reputations stem from bad press. This can affect contracts, initiate sweeping industry changes and, ultimately, prevent companies from making as much profit. According to the Information Technology & Innovation Foundation, when news broke about the NSA's PRISM cyber surveillance program in the US, cloud and technology companies such as Apple (Nasdaq: AAPL), Google (NasdaqQ: GOOG) and Microsoft (Nasdaq: MSFT) stood to lose between $22 and $35 billion over three years because of heightened privacy concerns.

Leighton, which has already dealt with the allegations and has been facilitating a Federal police investigation in the matters, may be affected by the negative press, but it's unlikely because the industry and emotions embroiled in their business are not the same.

What is a Fool to do?

When I picked Leighton as my September stock idea, I knew it had previously removed its CEO and had numerous boardroom woes. Nothing has changed.

If anything the core business of Leighton has changed for better since it started cooperating with the AFP in November 2011. In fact since then it has undergone, "a major cultural and business transformation," according to a letter sent to shareholders on October 11.

Savvy investors always buy their shares "subject to prevailing market conditions" because no stock is a buy at any price. I bought my shares in the company around $16.90 and vowed to myself that anything below $16 would trigger another buy. Unfortunately I didn't get the opportunity.

Foolish takeaway

Leighton Holdings remains in my portfolio because it is a beaten down stock that has huge growth potential despite already having a large market capital and being established in Australia, the Pacific and Middle East. In addition to its long-term growth prospects it has a modest debt position and pays a good dividend.

Leighton's dividend is good, but we think we've found the best dividend on the ASX. Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

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Motley Fool contributor Owen Raszkiewicz owns shares in Leighton Holdings.  

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