One implication of the principle of diversification is that company insiders- who, in a way, are already “invested” in the company as it is a source of income for them- should avoid buying stock unless they are particularly confident that the share price will rise. Our analysis of studies on insider trading shows that stocks bought by insiders slightly outperform broader market indices. While retail investors can’t imitate every insider purchase, we think that they can treat these buys similarly to a stock screen, performing further research on any interesting companies. Read on for our quick take on five stocks that insiders have bought recently.
A Board member purchased 10,000 shares of Hess Corp. (NYSE:HES), an oil and gas company planning to sell or spin out its midstream and downstream assets, on June 21st. Hess Corp. (NYSE:HES)’s revenue and pretax income have been up, and so its forward earnings multiple of 11 places it in value territory. However, we’d note that this forward P/E is similar to those of larger oil and gas companies. In addition to insider purchases, we maintain a database of quarterly 13F filings from hundreds of hedge funds and other notable investors. We use this information to help us develop investment strategies (we have found, for example, 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 can also see how fund managers are trading individual stocks. Billionaire Paul Singer’s Elliott Management had been agitating Hess Corp. (NYSE:HES)’s management to sell off its non-core assets for some time; we can see that the fund had over $1 billion invested in the stock at the end of March (see Singer’s stock picks).
Our database also shows a recent insider purchase at $5.5 billion market cap coating and paint manufacturer The Valspar Corporation (NYSE:VAL). In its most recent quarter The Valspar Corporation (NYSE:VAL)’s revenue and earnings both came in within 1% of their levels from the same period in the previous fiscal year. The paint segment did well- it’s possible that, as with Sherwin-Williams Company (NYSE:SHW), paint sales can be seen as benefitting from a strong housing market- but this was offset by weak performance in coatings. Citadel Investment Group, managed by billionaire Ken Griffin, reported a position of about 1 million shares of Valspar in its 13F (find Griffin’s favorite stocks).
A member of Sarepta Therapeutics Inc (NASDAQ:SRPT)’s Board of Directors was buying the stock in mid June at an average price of $38.50 per share. That’s some time ago, but Sarepta Therapeutics Inc (NASDAQ:SRPT) is still trading at about those levels as markets weigh how likely it is that the FDA will speed up the process of considering its leading product candidate. The stock is up 45% year to date (and over 900% since a year ago) and is another popular short target; as a development stage company, it is currently unprofitable and the sell-side expects losses in 2014 as well.
Broadcast TV station owner Gray Television, Inc. (NYSE:GTN) rounds out our list of stocks seeing recent insider buying. Gray Television, Inc. (NYSE:GTN) is up over 200% year to date, and may be seen as a potential takeover target; there’s been some M&A activity in television stations and a larger peer has announced publicly that it is looking for acquisitions. However, Gray’s trailing EV/EBITDA multiple is 7.2x and if we tack an acquisition premium onto that figure the discount to the impending buyout of Belo Corp (NYSE:BLC) would be small and that company has been delivering better financial performance recently.
Disclosure: I own no shares of any stocks mentioned in this article.
