We track insider purchases because we believe they serve as signals that company officers or Board members are confident in the stock’s prospects. This confidence has to be strong enough for an insider to ignore the benefits of diversification enough to actually increase their holdings of the stock. While insider purchases don’t always precede a rise in the stock price, on average stocks bought by insiders to tend to outperform the market (read more about studies on insider trading). Here are five stocks that insiders have bought recently:
Claiborne Deming, who was the CEO of Murphy Oil Corporation (NYSE:MUR) until 2008 and currently serves on the Board of Directors, bought 80,000 shares at a range of prices that topped out at about $60.50. Sales increased 9% last quarter compared to the fourth quarter of 2011. At 12 times trailing earnings, Murphy is trading at similar levels to much larger integrated oil and gas companies such as Exxon Mobil and BP, and when we had looked at the company we had thought that peers such as these might be at least as good values. Billionaire Dan Loeb’s Third Point owned 4.9 million shares of Murphy at the end of September (see Loeb’s stock picks).
A Board member at CarMax, Inc (NYSE:KMX) continued buying and has now purchased 50,000 shares since the beginning of February. Tom Gayner’s portfolio at insurance company Markel has a large position in CarMax (find more of Gayner’s favorite stocks). The used car dealer experienced double-digit growth rates on both top and bottom lines in its most recent fiscal quarter (which ended in November) compared to the same period in the previous fiscal year. CarMax trades at trailing and forward P/E multiples of 22 and 19, respectively. The stock carries a beta of 18, signifying that it tends to react strongly to changes in broader market indices.
See three more stocks insiders have been buying, including two REITs:
Sigma-Aldrich Corporation (NYSE:SIAL), a $9.3 billion market cap company which provides chemicals and chemical equipment, had senior vice president George Miller buy 1,000 shares at prices just below $77. Sigma-Aldrich is priced for growth at a trailing P/E of 20, though recently it has not been delivering results in line with this multiple. Specifically, in the fourth quarter of 2012 sales and net income were up 7% from Q4 2011, and for the year as a whole earnings were essentially unchanged. Analyst consensus for 2014 implies a forward P/E of 17, and we think that we would avoid the stock.
Multiple insiders have reported buying shares of Newcastle Investment Corp. (NYSE:NCT), which is a real estate investment trust investing in real estate assets including mortgage-backed securities, at prices of about $10.50. Because REITs are required to distribute much of their income to shareholders, they often pay high yields; Newcastle’s dividend yield is almost 8%. However, the financial crisis was very hard on the company: quarterly dividend payments are less than a third what they were in 2007 and the stock is about flat since the beginning of 2008. Any future problems in the real estate market would therefore be expected to cause a reduction in yield as well.
BRE Properties, Inc. (NYSE:BRE) is another real estate investment trust where we have picked up on an insider purchase; a Board member bought about 2,000 shares at an average price of $48.95 per share. BRE owns apartment buildings, and reported a 9% increase in funds from operations last year compared to 2011 (REITs are evaluated in terms of their funds from operations rather than net income because it allows depreciation to be added back; real estate assets often increase in value, rather than depreciating in line with traditional accounting standards). The company has also raised its dividend, though its yield is lower than Newcastle’s at 3.2%.
Disclosure: I own no shares of any stocks mentioned in this article.
