In theory, insiders should be reluctant to buy stock in the company and so give their personal financial situation more exposure to negative surprises. It really only makes sense to buy if an insider is confident in the company’s future prospects. Studies show that because insiders tend to buy stock when the company is doing well or about to do well, mimicking their purchases can outperform the market on average (see more about studies on insider trading). Of course, investors can’t follow every insider purchase, but we think that a look at which companies have been seeing insider trading recently can be a useful screen for further research. Here are five stocks that insiders have been buying:
Multiple insiders have been buying at Chemtura Corporation (NYSE:CHMT), a $2 billion market cap specialty chemicals company. See more details about the insider purchases. Consensus insider buying is a particularly bullish signal and so we looked particularly closely here. Chemtura trades at 18 times trailing earnings, but in recent quarters net income has been pulled down by special charges. With those expected to dissipate over time it’s reasonable to expect its numbers to be considerably better in the future. Billionaire James Dinan’s York Capital Management owned 2.8 million shares of Chemtura at the end of the third quarter, though this was down 12% from the beginning of July (check out more of billionaire Dinan’s stock picks).
The CEO of AK Steel Holding Corporation (NYSE:AKS) bought 100,000 shares of stock at an average price of $3.85. Steel companies such as AK and United States Steel Corporation (NYSE:X) have been hit hard by poor demand stemming from weak macro growth in Europe and China. AK Steel’s stock is down 50% in the last year, and the company is unprofitable on a trailing basis. Analysts expect it to have positive earnings in 2013- the forward P/E is 24- and the CEO buying is a positive sign. It’s likely that other steel companies, or possibly metallurgical coal producers tied to steel production, might be performing better at the moment and face a similar upside if the steel market recovers.
Ken Miller, a Board member at Loews Corporation (NYSE:L), invested about $200,000 in the company- roughly a 40% increase in his stake. Loews operates an insurance company, energy businesses such as contract drilling services and pipelines, and hotels. Renaissance Technologies, founded by billionaire Jim Simons, initiated a position in the company during the third quarter (find more stock picks from Renaissance). However, by comparing the company to a portfolio of peers in industries matching Loews’ business lines- including The Travelers Companies, Inc. (NYSE:TRV) and Transocean LTD (NYSE:RIG), we concluded that the less focused Loews isn’t necessarily a good buy at its current valuation. Read our analysis of Loews.
A company owned by one of Altisource Portfolio Solutions S.A. (NASDAQ:ASPS)’s Board members bought 1,000 shares for $103.87 per share. Altisource is a mortgage portfolio management services company, and its earnings were up 57% in the third quarter compared to the same period in 2011. Billionaire Leon Cooperman’s Omega Advisors has been selling shares (see what else Cooperman is buying and selling), though the fund may be locking in profits after the stock has risen about 300% in the last two years. We had thought that taking profits would be a good idea here as well, since Altisource is higher priced on a forward earnings basis than its peers and depends on continued higher growth to justify that premium.
Sealed Air Corp (NYSE:SEE) Board member Kenneth Manning bought 5,000 shares of stock at an average price of $17. Sealed Air provides packaging for sealing in food and for protecting shipped goods (for example, it produces Bubble Wrap). A recent acquisition has caused higher sales, but not as much of an increase in operating income (in addition, the number of shares outstanding has increased. Wall Street analysts expect good earnings per share numbers, implying a forward P/E multiple of 13, but this seems dependent on stronger business performance.
