Studies show that stocks bought by insiders tend to outperform the market, and there is a particularly significant effect for stocks bought by multiple company insiders (read our analysis of studies on consensus insider purchases). Of course investors can’t imitate every insider purchase (and not every insider purchase beats the market), but we think that particularly combined with a screen for traditional value criteria these stocks make for a good list of initial ideas for further research. Here are five stocks which multiple insiders have bought in the last three months and which have both trailing and forward price-to-earnings multiples of 15 or lower:
Two Board members bought shares of AbbVie Inc (NASDAQ:ABBV), a $66 billion market cap drug manufacturer. AbbVie, a spinout of Abbott Labs (NYSE:ABT), went public at about the beginning of this year and has risen 18% from its levels shortly after the IPO. It pays a dividend yield of almost 4%, competitive with many other large healthcare companies. Spinouts also receive a good deal of attention from value investors, since management may be better able to unlock shareholder value from the company’s operations now that it does not have to concern itself with the larger business (learn more about investing in spinouts).
In February, one member of the Board of Directors bought 14,000 shares of $4.1 billion market cap property and casualty insurance company Validus Holdings, Ltd. (NYSE:VR) at over $35 per share and another bought 5,000 shares. Validus trades right at the book value of its equity, but apparently the company has been using its assets quite efficiently: the trailing P/E is 10. The sell-side expects earnings growth over the next several years, resulting in a five-year PEG ratio of 0.9. Billionaire Ken Griffin’s Citadel Investment Group was buying between October and December, closing 2012 with a position of 1.6 million shares (see Griffin’s stock picks).
Several company insiders were buying Huntington Bancshares Incorporated (NASDAQ:HBAN), a Rust Belt-based bank with a market capitalization of $6.2 billion. Huntington is another financial stock which isn’t cheap in terms of book value- in fact, there is a small premium here- but its trailing and forward P/Es are in the 10-11 range. It also reported double-digit growth rates of both revenue and earnings in its most recent quarter compared to the same period in the previous year. During the fourth quarter of 2012, Clint Carlson’s Carlson Capital initiated a position of 6.8 million shares (research more stocks Carlson was buying).
Multiple insiders bought shares of GrafTech International Ltd (NYSE:GTI) in mid March at prices of about $7.30 per share. GrafTech is a manufacturer of electronics equipment such as graphics electrodes. The stock is cheap on a trailing basis with a P/E of 9, but earnings declined 50% in the fourth quarter of 2012 versus a year earlier. Wall Street analysts expect net income to continue to decline, though their forecasts imply a forward earnings multiple of 13. Chuck Royce’s Royce & Associates owned almost 19 million shares of the stock at the end of December, but a number of market players are bearish with 18% of the float held short.
Disclosure: I own no shares of any stocks mentioned in this article.
