Studies show that statistically stocks bought by insiders tend to outperform the market (read about studies on insider trading) though overall the effect is not very large and obviously does not occur in all cases. In addition, investors cannot buy even a significant percentage of stocks bought by insiders and hold them for a reasonable period of time. As a result we track insider purchases, but then take at least a brief look at the company involved to see if it seems like a good value stock. Here are five stocks that insiders bought recently:
Multiple insiders have been buying insurance company Markel Corporation (NYSE:MKL). We particularly like to see consensus insider purchases, since on average they are particularly bullish signs (learn more about consensus insider buying). Markel, which is planning to merge with Alterra Capital Holdings Ltd (NASDAQ:ALTE), trades at a small premium to book value with a P/B ratio of 1.1. Its trailing earnings multiple of 18 also looks potentially expensive, especially as the company’s financial performance has not been particularly good. In addition, we’d be cautious of investing a company engaging in M&A as these activities tend to reduce shareholder value. See more of our analysis of Markel.
A Board member reported purchasing 3,000 shares of NuStar Energy L.P. (NYSE:NS) at an average price of $42.48 per share. A number of insiders were buying the stock in November 2012 as well (research insider purchases at NuStar). NuStar is a $3.6 billion market cap oil and gas transportation and storage company (primarily using pipelines). It doesn’t look too attractive in terms of a value investment at 21 times forward earnings estimates but the dividend yield is very high (over 9%) and the company has a good record of at least keeping its payments steady if not increasing them over time.
Apparel and accessories company G-III Apparel Group, Ltd. (NASDAQ:GIII) had its Director of Business Development buy 3,000 shares on January 2nd at an average price of $33.82 per share. The trailing P/E multiple is 13, and Wall Street analysis are bullish on G-III’s prospects: the five-year PEG ratio is only 0.6. Earnings were up 11% in the company’s most recent fiscal quarter compared to the same period in the previous fiscal year, and while that’s lower than analyst targets it would easily justify the current valuation if that growth rate continued. However, 15% of the outstanding shares are held short and so some market players are apparently bearish. Chuck Royce’s Royce & Associates was buying the stock during the third quarter. We think that a growing company at G-III’s earnings multiples is well worth checking out.
The President and CEO of Insmed Incorporated (NASDAQ:INSM) bought almost 11,000 shares of the stock on January 9th at $6.90 per share, roughly doubling his direct holdings. Insmed is a $210 million market cap biotech company (almost 200,000 shares have been traded per day in average for the last three months, so there is over $1 million in daily dollar volume). As a development stage company Insmed is not expected to be profitable in 2013; however, the stock has roughly doubled in the last year. We wouldn’t take any action but the CEO’s purchase is noted in case there are any further developments at the company.
John Cavoores, a Board member at Guidewire Software Inc (NYSE:GWRE), bought 1,000 shares of the stock at an average price of $31.06 per share. Guidewire is up strongly from its IPO price (the company went public about a year ago), though while revenue is up the company actually reported negative operating income in its most recent fiscal quarter. The stock trades at 78 times consensus earnings for the fiscal year ending in June 2014 and when we looked at it we thought that it and its peers were not good values. Read more about Guidewire.
Disclosure: I own no shares of any stocks mentioned in this article.
