Editor’s Note: Related tickers: Starbucks Corporation (NASDAQ:SBUX), Walter Energy, Inc. (NYSE:WLT), Key Energy Services, Inc. (NYSE:KEG), Kaman Corporation (NYSE:KAMN), LRR Energy LP (NYSE:LRE)
Studies show that stocks bought by insiders narrowly outperform the market (read our analysis of studies on insider trading). Our explanation for this finding is that insiders should avoid buying shares unless they are more confident than usual in the stock’s prospects; otherwise, economic theory suggests that they should prefer to diversify away from the company. Investors can’t imitate every insider purchase, but we think that they can be useful sources of initial ideas for further research if “stocks bought by insiders” is treated similarly to quantitative stock screens. Here are five stocks which insiders have bought recently:
Robert Gates, former U.S. Secretary of Defense, reported buying 3,300 shares of Starbucks Corporation (NASDAQ:SBUX) at an average price of $60.49 per share; Gates had joined Starbucks Corporation (NASDAQ:SBUX)’s Board of Directors about a year ago. In addition to insider activity, we track quarterly 13F filings from hedge funds and other notable investors to help us develop investing strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year). This database also lets us see that in the fourth quarter of 2012, Starbucks Corporation (NASDAQ:SBUX) was one of the most popular restaurant stocks among hedge funds (find more restaurant stocks hedge funds loved). When we last looked at Starbucks Corporation (NASDAQ:SBUX) we acknowledged its impressive growth rates (revenue rose 11% last quarter compared to the first quarter of 2012, with 6% comp sales growth) but noted that the trailing earnings multiple is 32.
We’ve also tracked several insiders buying shares of $960 million market cap oilfield services company Key Energy Services, Inc. (NYSE:KEG). It’s been a rough year for Key Energy Services, Inc. (NYSE:KEG) as well, as the stock price is down 46% from its levels a year ago. Revenue fell 12% in the first quarter of 2013 versus a year earlier, with the company reporting a net loss and a significant percentage decline in its cash flow from operations. Billionaire Ken Griffin’s Citadel Investment Group increased the size of its position in Key Energy Services, Inc. (NYSE:KEG) during the fourth quarter of 2012, closing December with 2.5 million shares (see Griffin’s stock picks).
Kaman Corporation (NYSE:KAMN)’s CEO disclosed a direct purchase of 5,000 shares at an average price of $33.71 per share. Kaman Corporation (NYSE:KAMN) is a manufacturer of aircraft components (including for military functions) and a distributor of industrial products. In its most recent quarter, revenue was about flat compared to the same period in the previous year while earnings fell by 24%; at 17 times trailing earnings, it doesn’t look like that great a value to us. GAMCO Investors, managed by Mario Gabelli, disclosed ownership of 2.8 million shares at the end of 2012 (find Gabelli’s favorite stocks).
The co-CEO of oil and gas exploration and production company LRR Energy LP (NYSE:LRE) bought 6,300 shares of stock on May 6th. LRR Energy LP (NYSE:LRE)’s market capitalization is only about $400 million, but on average over 200,000 shares are traded per day and so at the current price of over $15 there is plenty of dollar volume for most investors. The company has been making quarterly dividend payments of about 48 cents per share the past few quarters, which makes for an annual yield of over 10%. Business has been down recently, however, so potential income investors should be sure to look into how safe the dividend is.
Disclosure: I own no shares of any stocks mentioned in this article.
