Insider purchases are worth tracking because on average- though not always- stocks bought by insiders outperform the market. Read about academic studies on insider trading. This can be helpful in a couple different ways. When researching a stock, for example, investors can consider insider activity as one of the many factors that go into an investment decision. Another way to use insider activity is to take a quick look at stocks that have recently been bought by insiders- essentially, a screen- and see if any are worthy of further research. Here are five stocks that insiders have bought recently:
The COO of amusement park company Cedar Fair, L.P. (NYSE:FUN) bought 3,000 shares of the stock on December 21st at an average price of $32.31 per share. In the crucial third quarter of the year (it seems that about half of Cedar Fair’s revenue is earned between July and September), revenue and earnings were down compared to the same period in 2011; however, earnings per share was actually considerably higher in the first nine months of 2012 thanks to better results in the first half of the year. The dividend yield is about 5% and it might be a target for income investors who don’t like the high valuation at Six Flags.
Multiple insiders have been buying stock at Weatherford International Ltd (NYSE:WFT), an $8.2 billion market cap oil and gas equipment and services company. Consensus insider buying is a particularly bullish signal. Revenue was up 13% last quarter versus a year earlier, mostly on strong international business, though operating income and earnings were actually down as lower margins offset growth on the top line. With a beta of 2.2, Weatherford is very sensitive to movements in the broader market. The forward P/E is 10 and that is low enough, combined with the insider buying, to be worth taking a closer look at.
Insider buying has continued at Francesca’s Holdings Corp (NASDAQ:FRAN), a $1.1 billion market cap retailer of women’s apparel and accessories. See a history of insider buying at Francesca’s. Growth has been high- earnings last quarter were more than double what they were a year earlier- but the market price has already captured quite a bit of future growth with a trailing P/E multiple of 28. The sell-side thinks that the stock is slightly undervalued, with a five-year PEG ratio of 0.9; even though we’re wary of stocks with such high valuations, the recent growth rates have been high enough that it might merit consideration as a growth stock.
Another stock with multiple insiders adding shares is Puerto Rican bank Oriental Financial Group Inc. (NYSE:OFG), which is in the process of acquiring the local operations of another bank. Research insider purchases at Oriental Financial. Analysts join the insiders in being optimistic about the outcome of the transaction, with high EPS growth expected for 2013, but markets are warier: the forward P/E multiple is only 9, and 13% of the outstanding shares are held short. Given that on average M&A tends to destroy shareholder value- but that company insiders are confident enough in this deal to buy the stock- our judgment is that it’s best to wait and see how much the acquisition actually adds to EPS in the next quarter or two.
Navistar International Corp (NYSE:NAV)’s president and COO Troy Clarke bought a little over 8,400 shares at an average price of $20.27 per share. Navistar, which produces trucks, engines, and other parts, has been targeted by activist investor Carl Icahn (see Icahn’s stock picks). The stock trades at 10 times consensus earnings for 2013 after having dropped 45% in the last year; short interest remains high, with 23% of the outstanding shares held short, as many traders expect it to go even lower. With revenue down in its most recent fiscal quarter compared to the same period in the previous year, we would avoid it.
