Studies show that stocks bought by insiders exhibit a small outperformance effect (read our analysis of studies on insider trading) and our explanation for this finding is that insiders should generally only buy when they are confident in the company’s prospects (in other cases, it is rational for them to diversify their wealth rather than increase company-specific risk). We track insider purchases so that investors can review big buys by insiders and decide if the stock is a good target for further research. Here are five stocks that insiders have bought recently:
A Board member at Philip Morris International Inc. (NYSE:PM) bought 1,000 shares of stock on May 28th at an average price of $95.08 per share. The cigarette company pays a dividend yield of 3.7%, which while high is actually lower than that of some of its peers. Philip Morris International Inc. (NYSE:PM)’s business has been about flat, with little change in revenue or earnings compared to a year ago. In addition to insider trading activity, we also maintain a database of quarterly 13F filings from hedge funds, using the included information to develop investment strategies (for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). According to its filing, billionaire Ken Fisher’s Fisher Asset Management owned 5.6 million shares of Philip Morris International Inc. (NYSE:PM) at the end of March (find Fisher’s favorite stocks).
Our database shows a large insider purchase at AOL, Inc. (NYSE:AOL) in late May. While the well-known Internet subscription business segment is declining, AOL, Inc. (NYSE:AOL) has moved aggressively into media (it owns the Huffington Post, for example) and so advertising sales is causing total revenue to rise. Earnings were up 23% last quarter from their levels in the first quarter of 2012, though the stock is priced for further growth already with a forward P/E of 18. D.E. Shaw, a large hedge fund managed by David Shaw, reported a position of 2.3 million shares of AOL, Inc. (NYSE:AOL) in its 13F though this was down considerably from three months earlier (see D.E. Shaw’s stock picks).
Cabelas Inc (NYSE:CAB), the sporting goods store which has been seeing particularly strong business these past few years on high gun sales, has also been seeing insider buying activity. The stock price has risen over 400% in the last five years. While Cabelas Inc (NYSE:CAB) trades at 25 times trailing earnings, the company’s growth has continued as gun owners worry about future regulation of sales of guns and ammunition. Revenue was up almost 30% in the first quarter of 2013 versus a year earlier, and this was primarily due to comp sales. With net margins rising, earnings grew at an even faster rate.
A member of weight loss drug company VIVUS, Inc. (NASDAQ:VVUS)’s Board of Directors bought 15,000 shares of stock on May 29th. VIVUS, Inc. (NASDAQ:VVUS) and competitor Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) have both brought weight loss drugs to market, and investors have been battling over the relative effectiveness and safety of their offerings. Wall Street analysts expect that it will take some time for Vivus to prosper, with net losses expected for this year and next year. John Burbank’s Passport Capital disclosed ownership of 9.6 million shares as of the beginning of April (research more stocks Passport owned).
An insider at Celgene Corporation (NASDAQ:CELG), a $49 billion market cap biotechnology company, was buying in late May at prices of about $124 per share; the stock price has since fallen to below $117 as of this writing. While the stock is up 83% in the last year, in its most recent quarter net income actually fell slightly compared to the same period in the previous year. Analysts do expect earnings growth going forward, and Celgene Corporation (NASDAQ:CELG)’s forward P/E multiple is 17. Renaissance Technologies, whose founder Jim Simons is now a billionaire, more than doubled its stake in Celgene between January and March (check out more stocks Renaissance was buying).
Disclosure: I own no shares of any stocks mentioned in this article.
