According to economic theory, company insiders should be quite hesitant to buy stock. Doing so increases their company-specific risk, therefore violating the principle of diversification, and so should tend to occur when insiders are particularly confident in the stock price. In fact, studies show a small outperformance effect for stocks bought by insiders (read our analysis of studies on insider trading). Investors can’t imitate every insider purchase, but we still think that it can be useful to review insider buys in search of interesting stocks worthy of further research- similar to the ways that stock screens are best used. Here are five stocks that insiders have bought recently:
Limited partnerships connected to the vice chairman of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s Board of Directors purchased a total of 1.1 million shares of stock in early June. The company recently closed acquisitions of two oil and gas companies; the stock price has dropped over 20% since the deal was announced, leaving the stock paying a dividend yield of 4% at current dividend levels. We cover insider trading activity and also follow quarterly 13F filings from hedge funds and other notable investors. This information can be used to develop investing strategies (for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year) and also lets us investigate interest in particular stocks. We can see that billionaire Leon Cooperman’s Omega Advisors owned 3.1 million shares of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) as of the end of March (see Cooperman’s stock picks).
Insiders have also been buying on the recent dip at Iron Mountain Incorporated (NYSE:IRM); four different insiders bought shares on June 7th after the stock fell 16% on the news that the IRS may adopt a stricter definition of “real estate” which would prevent the company from converting to an real estate investment trust. REITs receive favorable tax treatment, and so bulls had been buying the stock on speculation that REIT conversion would be approved. Renaissance Technologies, whose founder Jim Simons is now a billionaire, reported a position of 1.5 million shares at the end of Q1 (find Renaissance’s favorite stocks).
Our database shows that mail services company Pitney Bowes Inc. (NYSE:PBI) also saw insider purchases recently, with an executive vice president buying 15,000 shares at an average price of $14.43 per share. While the earnings multiples are low- Pitney Bowes trades at only 8 times its trailing earnings- the company has been experiencing lower revenue and higher costs. As a result operating income fell nearly 50% in the first quarter of 2013 versus a year earlier. Tiger Global Management, a Tiger Cub hedge fund, had 1.8 million shares of Pitney Bowes in its portfolio at the beginning of April (check out more stocks Tiger Global owned).
An insider at Woodward Inc (NASDAQ:WWD), a $2.8 billion market cap provider of energy control components such as pumps and valves for aerospace and energy customers, bought almost 7,400 shares of the stock on June 5th. The stock carries trailing and forward P/Es of 20 and 16, respectively, placing it quite a bit outside pure value territory. With Woodward’s revenue up only modestly going by recent reports, we would avoid it. Royce & Associates, a fund managed by Chuck Royce which focuses on small-cap and mid-cap stocks, disclosed ownership of 4.7 million shares of Woodward in its most recent 13F.
Disclosure: I own no shares of any stocks mentioned in this article.
