Studies show that stocks bought by insiders tend to narrowly outperform the market (read our analysis of studies on insider trading) which we’d attribute to insiders tending to buy when they are confident in the company’s prospects; at other times, it makes more sense for them to diversify away from the company. We also track quarterly 13F filings from hedge funds as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). It’s also possible to go through filings from individual managers such as billionaire Dan Loeb of Third Point and look for stocks which company insiders have bought recently as a potential source for investment ideas. Here is our quick take on Third Point’s five largest holdings as of the end of March which at least one insider has bought in the last three months (or see the full list of the fund’s stock picks).
While Loeb sold some of his shares of American International Group Inc (NYSE:AIG), it was still one of his three largest holdings by market value. Our database shows that one of the company’s Board members bought 10,000 shares in May at an average price of $45.20 per share. While American International Group Inc (NYSE:AIG) has done well year to date, we think that is still maintains some value prospects given its discount to the book value of its equity (the P/B ratio is 0.8). The company’s reputation is still poor enough that we wouldn’t expect it to trade at book, but we’d still expect this gap to narrow a bit over time. American International Group Inc (NYSE:AIG) had been the most popular stock among hedge funds in the fourth quarter of 2012, but fell to #3 last quarter (find more of hedge funds’ favorite stocks).
The fund moved heavily into AbbVie Inc (NYSE:ABBV), a $70 billion market cap pharmaceutical company where we have also seen insider buying in the last three months. Last quarter AbbVie Inc (NYSE:ABBV)’s revenue was up slightly compared to the first quarter of 2012, with higher margins pulling net income up by 10%. The earnings multiples are in the low teens, and the company’s most recent dividend payment suggests a yield of 3.5%. Renaissance Technologies, whose founder Jim Simons is now a billionaire, initiated a position of 2.4 million shares between January and March (research more stocks Renaissance was buying).
Loeb and some other activists- most notably Elliott Management, managed by billionaire Paul Singer- have been targeting Hess Corp. (NYSE:HES) in a campaign to break up that oil and gas company, and we’ve tracked insider purchases here as well. Analyst expectations for 2014 imply a forward P/E of 12, in line to slightly above where oil majors are trading in the current market. However, the company’s most recent 10-Q shows good numbers compared to the same period in the previous year, and there is of course the possibility that a breakup would lead to an improvement in operations.
Disclosure: I own no shares of any stocks mentioned in this article.
