Investors cannot mimic every insider purchase, but they can use the knowledge that stocks bought by insiders tend to narrowly outperform the market on average (learn more about studies on insider trading) and think of insider purchases as being much like a stock screen. It’s similarly a bad idea to buy a stock because of a low earnings multiple or high insider ownership- these screens are best used to identify ideas for further research, and insider purchases can yield a list of stock ideas in the same way. Here are five stocks that insiders have been buying recently:
A Bank of America Corp (NYSE:BAC) Board member bought 20,000 shares at an average price of $11.53. The same insider had bought shares at about $9.50 in early November 2012. In the third quarter of 2012, Bank of America was one of the most popular stocks among hedge funds (see the full top ten list). Bank of America stands out among its peers for trading at a considerable discount to book value (the P/B ratio is 0.6) but in terms of earnings (the forward P/E is 9) it’s actually not particularly cheap. As a result, when Insider Monkey last looked at the stock we thought that some other banks made for better investments. Read more about the insider purchase and which large banks we like instead.
Health insurer UnitedHealth Group Inc. (NYSE:UNH) also had a member of its Board of Directors buy shares of the stock. UnitedHealth is up 25% from its levels a year ago, but is still a potential value stock with trailing and forward P/Es of 11 and 9 respectively. The company has been experiencing modest growth on both top and bottom lines, but earnings growth does not need to be high at its current pricing for the stock to prove undervalued. Billionaire Dan Loeb’s Third Point owned 2 million shares at the end of September (find Loeb’s favorite stocks). Investors should consider UnitedHealth and other health insurance stocks, as they tend to be cheap and tend to have low betas in case of a bear market.
Read on for our coverage of three more insider purchases, including one at TD Ameritrade:
An officer of Toronto-Dominion Bank, who serves as a Board member at TD Ameritrade Holding Corp. (NYSE:AMTD), purchased 3,500 shares at an average price of $19.08 per share. TD Ameritrade’s revenue and earnings were about flat last quarter versus a year earlier. With earnings multiples in the high teens, the company has to deliver better earnings growth in order to justify its valuation. SAC Capital Advisors, which is managed by billionaire Steve Cohen, added shares during the third quarter of 2012 and closed September with 3.7 million shares in its portfolio (see more of Cohen’s stock picks).
IHS Inc. (NYSE:IHS), a $6.8 billion market cap information and analysis company, recorded an insider buy on January 22nd at $99.26 per share. IHS reported double-digit growth rates of both sales and net income in its most recent fiscal quarter (which ended in November) compared to the same period in the previous fiscal year. While it is good to see strong growth, quite a bit of improvement is already priced in to the stock given the trailing earnings multiple of 44. Investors interested in this type of business should consider peers such as Dun & Bradstreet (NYSE:DNB) or Moody’s (NYSE:MCO).
A business related to Christopher Cline bought about $15 million in stock from Natural Resource Partners LP (NYSE:NRP); Cline is a Board member at the company and so this transaction had to be reported as an insider purchase. Natural Resource Partners is a lessor of coal mines in the U.S.; while the coal business has suffered over the past couple years due to low demand, investors such as George Soros and T. Boone Pickens have been buying shares in coal companies recently. Natural Resource Partners stands out for a dividend yield close to 10%, so income investors may want to consider it (though they should keep the macro factor of coal in mind).
Disclosure: I own no shares of any stocks mentioned in this article.
