Part of my ritual as an investor is to review the Insider Transactions column in Barron’s Magazine. The popular weekly publication makes an effort to highlight the largest insider purchases and sales in recent days.
While Barron’s provides basic information about insider activity, readers are left on their own to explore whether a solid argument can be made to buy or sell a stock.
Here are three stocks that caught my eye from Barron’s May 27 issue, and the underlying story for each:
Insurance giant on the rise
American International Group Inc (NYSE:AIG) is an international insurance company which serves customers in more than 130 countries through its property-casualty network. The company received a bailout from the U.S. Treasury during the 2008-09 financial crisis and repaid its commitment to the American taxpayer in full during late 2012.
I’ve written positively on American International Group Inc (NYSE:AIG) before, notably my comprehensive write-up Insiders Love This Back from the Dead Financial. Shares have risen more than 25% year-to-date and are poised to continue their climb with recentinsider buying and continued optimism from Wall Street.
Recently appointed board member William Jurgensen purchased 10,000 shares of AIG common stock for $45.20 per share. The total transaction value amounted to $452,000 when the stock was bought on May 20. Jurgensen is the former CEO of Nationwide Mutual Insurance and Nationwide Financial Services.
American International Group Inc (NYSE:AIG) reported first quarter earnings on May 2, posting a $1.34 per share profit compared to an $0.87 consensus. The better-than-expected report has caused Wall Street analysts to raise their full-year estimates on the insurance giant, making AIG’s current valuation more attractive.
I believe American International Group Inc (NYSE:AIG) shares will continue to the upside based on an expanding return on equity (ROE), improved capital management, and share buyback plan. Analysts at Barclays Capital raised their price target to $52 from a previous $41 as recently as May 13.
Embattled energy producer
A leading natural gas and oil E&P company, Chesapeake Energy Corporation (NYSE:CHK) came to the forefront of financial news in recent years for its controversial CEO Aubrey McClendon.
Mr. McClendon gained the attention of corporate governance experts for his controversial pay packages and personal expenditures using corporate funds. Dating back to the 2008-09 financial crisis, McClendon purchased Chesapeake Energy Corporation (NYSE:CHK) stock on margin and ultimately required the company to issue a bailout for his personal finances.
To the applause of governance critics and shareholders alike, McClendon finally resigned in January 2013 after numerous inquiries were made regarding his personal loans. Shares have risen more than 14% since the announcement and formal resignation on April 1.
Robert Lawler, a senior executive at Anadarko Petroleum Corporation (NYSE:APC), has been selected to be the new CEO of Chesapeake Energy Corporation (NYSE:CHK) effective on June 17. Lawler has more than 25 years of experience as a petroleum engineer.
The positive announcement of a new CEO has been met with a massive $9 million purchase by Chesapeake Energy Corporation (NYSE:CHK)’s Chairman of the Board. Board member Archie Dunham, the 73-year old Non-Executive Chairman at Chesapeake, provided a clear vote of confidence by purchasing 450,000 shares of stock with his own personal finances. Dunham was the President and CEO of the former ConocoPhillips from 1996-2002.
On a fundamental basis, Chesapeake is expected to rapidly expand its oil and gas production under Lawler’s leadership. Analysts at Susquehanna upgraded CHK to a “positive” rating from “neutral” on the news, raising their price target to $26.
I recommend buying Chesapeake Energy Corporation (NYSE:CHK) on the back of the $9 million purchase by chairman Archie Dunham.
Medical device company on the mend
Orthofix International NV (NASDAQ:OFIX) is a medical device company focused on developing and delivering innovative repair and regenerative technologies to the spine and orthopedic markets. The company offers products that help patients before, during, and after surgical procedures or as a clinical alternative to surgery.
During college, I developed a metatarsal stress fracture in my foot as a result of an ambitious transition to barefoot running. My doctor prescribed an Orthofix International NV (NASDAQ:OFIX) bone growth stimulator which made for an accelerated 3-month recovery, much faster than the expected healing time.
So what’s the story here? On May 8, Orthofix International NV (NASDAQ:OFIX) reported extremely poor Q1 2013 results. The company posted earnings of $0.23 per share, a significant shortfall from a consensus of $0.66. Revenue fell to $100.3 million from $116.0 million during the first quarter of 2012.
Investors reacted by sending the stock lower more than 15% on the news. Market sentiment had been negative on Orthofix since the beginning of the calendar year, and shares have now fallen more than 32.5% year-to-date. The company appointed a new Chief Financial Officer in October 2012 and its CEO resigned in March 2013, a potential warning sign ahead of the quarter.
Orthofix International NV (NASDAQ:OFIX) has taken numerous measures in order to right the ship and restore its former reputation. For one, the board appointed Brad Mason as the new CEO in March, a well-respected Orthofix alumnus who served the company from 2003 to 2010 and delivered profitability for the Spinal Implants division.
In addition to the management shake-up, 5 insiders purchased 27,250 shares for a collective purchase of $719,000 in Orthofix stock ($26.39/share). The board of directors also authorized a $50 million stock buyback during the Q1 earnings release, a sufficient amount to repurchase 10% of outstanding shares.
Both signs indicate renewed confidence in the company which has faced numerous setbacks in the last year. Readers should consider being greedy when others are fearful, as Orthofix International NV (NASDAQ:OFIX) appears set for a 12-month business turnaround.
Foolish takeaway
Clearly, a significant amount of research is required in order to determine the motivation for insider buying activity.
In the case of Chesapeake Energy Corporation (NYSE:CHK), the chairman of the board purchased $9 million worth of stock in order to restore investor confidence following the departure of Aubrey McClendon and the appointment of a new CEO. Shares of Chesapeake have significantly underperformed the S&P 500 in the last 5 years, and management is hoping to right the ship.
The story at Orthofix International NV (NASDAQ:OFIX) is similar; insiders are buying the stock as a vote of confidence following a disappointing quarter and management shake-up.
American International Group Inc (NYSE:AIG) stands in contrast to the above. The company is firing on all cylinders, and a new board member felt obligated to align his personal finances with shareholder interests.
Do you agree or disagree? Which of the three stocks is your personal favorite? Let me know in the comments section below.
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The article Bull or Bear? Tales From Barron’s Insider Buying List originally appeared on Fool.com and is written by John Macris.
John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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