While insider sales can occur because individuals expect the stock to do poorly, economic theory suggests through the principles of diversification that it is often rational for insiders to sell even if their feelings on the company’s prospects are neutral. Insider purchases, however, tend to be associated with slightly higher returns (read our analysis of studies on insider trading) and we think that this is because taking on more company-specific risk requires insiders to be more confident than usual. While it’s impossible to imitate every insider purchase, we think it can be a good idea to treat them similarly to the results of a stock screen: use them to produce a list of initial ideas which can then be researched further if they look like good values. Here are four stocks which insiders have bought this month:
Two Board members at Alcoa Inc (NYSE:AA) each bought about 2,500 shares of stock at $8.20 per share. Consensus insider purchases have been shown to have a stronger effect than single purchases (learn more about consensus insider buying), though these particular insiders have been frequent buyers in the past couple years as the stock has slumped. The aluminum producer beat earnings expectations in its report for the first quarter of 2013, with net income rising strongly in percentage terms versus a year earlier. However, we still place the stock price at 18 times annualized Q1 earnings. When we looked at Alcoa Inc (NYSE:AA) compared to its peers, we thought that it and Kaiser Aluminum Corp. (NASDAQ:KALU) looked like better picks than the rest of the industry though of course these two companies are tied to aluminum prices and so bear a certain amount of risk there.
A member of Mosaic Co (NYSE:MOS)’s Board of Directors purchased 2,000 shares on April 3rd at an average price of $58.22 per share. The $25 billion market cap company, which is a provider of fertilizer and other agricultural products, showed only small increases in revenue and operating income in its third fiscal quarter (which ended in February) compared to the same period in the previous fiscal year (net income was up on items such as foreign currency transactions). The trailing P/E is 13, which is line with the value levels for many stocks which are tied to agriculture even as some investors suggest that agriculture could be a major growth industry in the coming years due to increases in world population and meat demand. Billionaire Steve Cohen’s SAC Capital Advisors disclosed a position of 2.2 million shares in Mosaic Co (NYSE:MOS) as of the end of December (see Cohen’s stock picks).
AeroVironment, Inc. (NASDAQ:AVAV), a $410 million market cap company which generates most of its business from providing unmanned aircraft systems to the Department of Defense (about 300,000 shares are traded daily, and the current market cap is over $18), had a trust connected to a company insider report buying 7,000 shares. While the military has been shifting towards unmanned systems, it is also likely to be cutting spending in the near future; in addition, AeroVironment, Inc. (NASDAQ:AVAV)’s business has been down significantly recently. In fact, its last quarterly report showed an operating loss. The company does have plenty of cash on hand.
The spouse of a Board member at America’s Car-Mart, Inc. (NASDAQ:CRMT), an auto dealership with a market capitalization of about $400 million (but over $1 million in daily dollar volume) bought a little over 1,600 shares with the Board member himself buying over 700 at about the same time. Revenue was up 13% in the company’s most recent quarter (which ended in January) from its levels a year ago, with a similar rise in net income. The trailing P/E is in the low teens, and if the low market cap is not an issue it might be worth comparing America’s Car-Mart, Inc. (NASDAQ:CRMT) to larger auto dealers.
Disclosure: I own no shares of any stocks mentioned in this article.
