While insider selling is often not very informative- insiders in fact face a powerful economic incentive to diversify their wealth away from the same company which employs them in order to reduce company-specific risks- insider purchases are quite worthy of attention. It seems to us that in order for an insider to ignore the benefits of diversification, there must be an expectation of high returns in the stock. In fact, studies show that stocks bought by insiders do outperform the market by a small amount (learn more about studies on insider trading). This is why we track insider purchases and provide brief analysis of the involved companies so that investors can decide if they are worthy of further research. Here are five stocks insiders have reported buying recently:
The COO of Continental Resources, Inc. (NYSE:CLR), an exploration and production company with a focus on Bakken Shale oil, bought 1,500 shares at an average price of $85.59 per share. Continental experienced high growth in production, revenue, and earnings last year compared to 2011 and even though growth rates will slow the market is valuing the company at a quite reasonable 21 times trailing earnings. Other Bakken stocks carry fairly low multiples as well. Billionaire Steve Cohen’s SAC Capital Advisors increased its holdings of Continental in the fourth quarter of 2012 to a total of 1.6 million shares (see Cohen’s stock picks).
A Marsh & McLennan Companies, Inc. (NYSE:MMC) Board member purchased 4,000 shares on March 22nd at an average price of $37.32. Marsh & McLennan has two business units: insurance, and consulting services. While earnings have been growing, when we looked at the company we saw that its revenue numbers have generally been much more modest and so we’d worry that over time it will become harder to drive bottom-line growth; the earnings multiples are high enough that growth is needed to justify the current valuation. Viking Global, managed by billionaire and Tiger Cub Andreas Halvorsen, reported owning 1.6 million shares at the end of December (find Halvorsen’s favorite stocks).
AGCO Corporation (NYSE:AGCO) had a company with ties to a Board member buy additional shares in late March. The same company had been a buyer in November and December of 2012. (see a history of insider purchases at AGCO). At a market capitalization of $5 billion, the agricultural equipment company trades at 10 times trailing earnings (much in line with other machinery companies, including those specializing in agricultural machinery). Wall Street analysts are optimistic about the business, resulting in a forward P/E of 9 and a five-year PEG ratio of 0.8.
Real estate investment trust Agree Realty Corporation (NYSE:ADC), which is focused on retail properties, had a Board member buy close to 11,000 shares of the stock at prices of around $28. Real estate investment trusts receive favorable tax status conditional on distributing a large share of their taxable income to shareholders. This often results in high dividend yields, and Agree in fact pays a yield of nearly 6%- considerably higher than other retail REITs such as Simon Property Group, Inc (NYSE:SPG). We would note that Agree is considerably smaller at a market cap of about $320 million (daily dollar volume is well over $1 million).
Another smaller-cap real estate investment trust, Gramercy Capital Corp. (NYSE:GKK), was also seeing insider buying as the company’s CEO purchased 50,000 shares. Even though the market capitalization is only about $290 million over 600,000 shares of Gramercy are traded per day, and the current price is about $4.80 per share. The company invests in office buildings and mortgage-backed securities. Gramercy has not paid a dividend since 2008; even after a 73% rise in the last year, the stock is still down over 75% from its levels five years ago as the financial crisis hit the company hard.
Disclosure: I own no shares of any stocks mentioned in this article.
