Our database shows that insiders have recently going crazy about stocks ranging from natural gas producer Chesapeake Energy Corporation (NYSE:CHK) to security systems company ADT Corp (NYSE:ADT). According to economic theory, it is rational for investors to diversify their wealth; one implication of this theory is that company insiders should avoid buying stock and therefore increasing their company-specific risk. An exception to this rule would occur if the insider is particularly confident in the stock’s prospects, so insider purchases should be more likely to occur under that condition; in fact, studies generally show a small outperformance effect for insider purchases (read our analysis of studies on insider trading). Therefore we think that it can be a good idea to track what insiders are up to and see if any of their buys make for good stock picks. Read on for our quick take on five stocks insiders have bought recently.
An insider bought 8,000 shares of Chesapeake Energy Corporation (NYSE:CHK) between August 5th and 6th. After struggling with liquidity issues and a poor natural gas market last year, the exploration and production company has sold off some of its assets and Wall Street analysts expect enough improvement on the bottom line next year that the forward P/E is 12. Chesapeake Energy Corporation (NYSE:CHK) may be depending on higher natural gas prices for that to happen, however, and 12% of the float is held short as many market players are bearish.
As we’d mentioned, ADT Corp (NYSE:ADT) has also been a target of recent insider purchases. The company was spun out in order to be a pure-play home and business security and monitoring company; many investors like to invest in spinout situations on the theory that management becomes more able to focus on operations without having to consider the needs of the parent company. Read more about investing in spinouts. The stock started off strong after becoming publicly traded last October but has since declined to the point that it has underperformed the S&P 500. ADT Corp (NYSE:ADT) is valued at 20 times forward earnings estimates.
A Board member at Hercules Technology Growth Capital Inc (NYSE:HTGC), which primarily provides debt and equity to new ventures and private equity backed companies, was buying the stock at prices of around $14.60 per share. The company recently increased its dividend to 27 cents per share- a level at which the yield is over 7%- though it does tend to invest in somewhat risky securities to go with this high return. It is also fairly cheap in earnings terms, however, with a trailing P/E of 12, and might be worth a look from income investors.
Trucking company Old Dominion Freight Line (NASDAQ:ODFL) also makes our list of stocks with recent insider purchases. Old Dominion carries trailing and forward P/Es of 20 and 16, respectively, so markets are pricing in moderate to high earnings growth for the next several years. In fact, the company’s last quarterly report shows a 9% rise in revenue compared to the second quarter of 2012 with net income up by 22%. Billionaire Ken Griffin’s Citadel Investment Group reported a position of 1.4 million shares in its most recent 13F (find Griffin’s favorite stocks).
The executive chairman of office-focused real estate investment trust American Assets Trust, Inc (NYSE:AAT) recently bought 2,000 shares of stock. The company primarily owns and invests in property in California. It has been making quarterly dividend payments of 21 cents per share since shortly after going public in early 2011 (the stock has gained over 50% since then). As a real estate investment trust, American Assets Trust must distribute a large share of taxable income to shareholders in order to preserve its tax status.
Disclosure: I own no shares of any stocks mentioned in this article.
