There are a number of reasons why company insiders might choose to sell some of their stock. Buying additional stock in the company, and therefore increasing company-specific risk, should be a considerably rarer event and should likely indicate at least some degree of confidence in future performance. In fact, studies show a small outperformance effect for stocks bought by insiders (read our analysis of studies on insider trading). While insider buying events occur too frequently for an investor to follow each one, it’s possible to treat purchases similarly to stock screens and do more research on any individual names which come up in order to see if they might be good buys. We have gone through our database and here are five stocks which company insiders have bought recently.
A member of the Board of Directors at Michael Kors Holdings Ltd (NYSE:KORS) bought a little over 2,000 shares of the stock on September 11th. In its most recent quarter Michael Kors Holdings Ltd (NYSE:KORS) recorded a revenue increase of over 50% compared to the same period in the previous fiscal year, and net margins widened as well. Despite the fact that the stock is somewhat tied to the overall economy (with a beta of 2.0) and is priced somewhat expensively at a trailing earnings multiple of 33, this performance is strong enough that we’d be interested in taking a look at it as a growth stock.
In addition to insider trading activity, we follow quarterly 13F filings from hundreds of hedge funds and other notable investors. We’ve found in our research on investment strategies that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year, and our own portfolio based on these findings outperformed the market by 29 percentage points since inception last summer. Learn more about the research behind our small cap strategy. This database also comes in handy for tracking individual funds’ positions over time; we can see that billionaire Andreas Halvorsen’s Viking Global owned over 13 million shares of Michael Kors Holdings Ltd (NYSE:KORS) as of the end of June (find Halvorsen’s favorite stocks).
Another stock seeing some insider purchasing activity is Williams Companies, Inc. (NYSE:WMB), a $24 billion market cap natural gas and oil pipelines and processing facilities company. Over the past couple years Williams has increased its quarterly dividend payments to a level of 36.6 cents per share; this has brought its annual yield up to 4.2%. Markets are pricing in considerable growth in the company’s earnings as investors expect demand for natural gas transportation and related infrastructure to increase. Third Point, managed by billionaire Dan Loeb, initiated a position of 1.8 million shares during the second quarter of 2013 (see Loeb’s stock picks).
A Board member at oil and gas company Southwestern Energy Company (NYSE:SWN), which engages in midstream activities as well as exploration and production of U.S. shale plays, has bought a little over 10,000 shares at an average price of $37.86 per share. Southwestern Energy Company (NYSE:SWN)’s sales have been rising nicely over the last year, and with Wall Street analysts expecting further growth in earnings per share next year the forward P/E is 17. Chilton Investment Company reported owning about 980,000 shares of the stock in its most recent filing; that fund is managed by billionaire Richard Chilton (research more stocks Chilton owns).
What else?
An officer at Kinder Morgan Management, LLC (NYSE:KMR) was buying stock at prices just under $76 per share. Kinder Morgan Management, LLC (NYSE:KMR)’s stock price year to date is about flat following a recent drop, as research analysts at Hedgeye have questioned the company’s valuation. The Kinder Morgan network of companies is one of the largest players in transporting natural gas, oil, and other petroleum products and would be expected to benefit from the same trends as Williams Companies, Inc. (NYSE:WMB). It is valued at 27 times consensus adjusted earnings for 2014.
El Paso Pipeline Partners, L.P. (NYSE:EPB) rounds out our list of stocks with recent insider purchases as the company’s COO bought 18,000 shares. Investors may want to take the widespread insider optimism on pipeline companies as a cue to investigate the industry more generally. El Paso Pipeline Partners, L.P. (NYSE:EPB) has been consistently increasing its dividend since 2008 and its yield currently stands at a bit over 6%. In addition, the stock’s beta is quite low at 0.2, so at least in statistical terms the stock has shown little correlation to the overall economy.
Recommended Reading:
Five Small-Cap Stocks Insiders Are Crazy About
Corporate Execs Are Bulking Up Here
Disclosure: I own no shares of any stock mentioned in this article.
