We have been spending much of our time in the last month analyzing 13F filings from hedge funds and other notable investors and working on investment strategies using the included information (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). We have also been keeping an eye on insider trading activity, however. While insider selling is often rational in order to realize the benefits of diversification, insider purchases increase company-specific risk and so in theory should generally occur when an insider is particularly confident in the stock price. Studies in fact show that stocks bought by insiders exhibit a small outperformance effect (learn more about studies on insider trading). Here are five stocks that insiders have bought recently:
A Board member purchased 5,000 shares of Express Scripts Holding Company (NASDAQ:ESRX) at an average price of $59.58 per share. Express Scripts had made our list of the most popular healthcare stocks among hedge funds for the fourth quarter of 2012 (find more healthcare stocks hedge funds loved). Revenue and earnings growth rates are temporarily high as the company regains much of the business it lost during its dispute with Walgreen Company (NYSE:WAG). Wall Street analysts estimate $4.27 in earnings per this year, essentially equal to an annualization of Q4 2012 and implying a current-year P/E of 14. We would be interested in taking a closer look at the company.
Simon Property Group, Inc. (NYSE:SPG), a real estate investment trust which is a leader in owning shopping malls and other commercial property, has also been seeing insider buying. Real estate investment trusts must pay out much of their taxable income in order to maintain their tax status, though while Simon’s yield is about 3% this is lower than some of its peers and certainly lower than can be found in other segments of the REIT landscape. Funds from operations have been increasing though we would be a bit concerned as to how dependent the company is on consumer demand.
See three more stocks insiders have been buying, including one Warren Buffett likes:
A filing with the SEC reported that one member of M&T Bank Corporation (NYSE:MTB)’s Board of Directors acquired 1,250 shares on March 12th for $104.17 per share. At a market capitalization of $13 billion, M&T Bank trades at 14 times trailing earnings; this represents a premium to some larger megabanks, but M&T’s beta is significantly below 1 (which should indicate more resistance to macro factors) and earnings were up by 20% in 2012 from their levels a year earlier. Warren Buffett’s Berkshire Hathaway had 5.4 million shares in its portfolio at the end of December (check out Buffett’s stock picks).
Tom Leighton, the CEO of Akamai Technologies, Inc. (NASDAQ:AKAM), bought 30,000 shares at an average price of $34.75 per share. Akamai is a $6.2 billion market cap cloud computing services company. Last quarter the company experienced a 17% increase in revenue compared to the fourth quarter of 2011, and though margins slipped a bit net income was still up 14%. The trailing P/E is 31, so apparently Leighton is counting on high growth. Tiger Cub Philippe Laffont’s Coatue Management owned 3.3 million shares of Akamai at the end of December (see Laffont’s favorite stocks).
A Board member at Vitamin Shoppe Inc (NYSE:VSI), a $1.6 billion market cap retailer of nutritional products, purchased 2,000 shares on March 12th at $50.82 per share. Despite what some would call an attractive industry, Vitamin Shoppe’s top and bottom lines grew by less than 4% in its most recent quarter compared to the same period in the previous year. Given the trailing P/E of 26, that’s a fairly disappointing performance. 16% of the outstanding shares are held short. While we wouldn’t think it wise to short a stock seeing insider buying, we certainly think that Vitamin Shoppe is too expensive for a value investment right now.
Disclosure: I own no shares of any stocks mentioned in this article.
