According to Insider Monkey’s analysis of studies on the subject, stocks bought by insiders tend to slightly outperform the market on average. While it’s impossible for investors to imitate each one of the hundreds to thousands of insider purchases which take place each year, we think that reviewing insider purchases can work similarly to a stock screen in providing a list of names which investors can research further if they find any of these stocks interesting following an initial review. Read on for our quick take on three stocks which insiders have bought recently:
A Board member at eBay Inc (NASDAQ:EBAY) bought 5,000 shares of stock at an average price of $51.61 per share. eBay Inc (NASDAQ:EBAY) consists of two business units: the better known marketplace segment, and the payments segment which includes Paypal. Payments is growing faster in terms of revenue, but is also a lower-margin business at least on the segment level. As a result, while eBay Inc (NASDAQ:EBAY) grew its sales by 14% in the second quarter of 2013 versus a year earlier, the fact that its business mix is shifting slightly towards payments resulted in a somewhat smaller growth rate in terms of operating income.
Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds in addition to following insider activity; we’ve found that the included information can be useful in developing investment strategies (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). According to our database, billionaire Stephen Mandel’s Lone Pine Capital owned 9.7 million shares of eBay Inc (NASDAQ:EBAY) at the end of March (find Mandel’s favorite stocks).
Industrial products and climate control systems company Ingersoll-Rand PLC (NYSE:IR) also had an insider buy shares recently. Sales have been essentially unchanged so far this year compared to the first six months of 2012, with a small amount of revenue growth in Q2 offsetting a small decline earlier in the year. Pretax income is down slightly. The stock trades at 19 times trailing earnings; at that valuation, even with the company buying back shares as aggressively as it has been, investors should be looking for growth in profits in order for Ingersoll-Rand PLC (NYSE:IR) to be a good value. Even with the insider purchase it seems best to avoid the stock.
An insider at $4.3 billion market cap oil and gas driller Nabors Industries Ltd. (NYSE:NBR) directly acquired 11,000 shares of stock on July 25th. While Nabors Industries Ltd. (NYSE:NBR) does have some offshore operations, it is noticeable compared to many other drilling contractors in being focused on onshore drilling. Onshore generally offers lower initial costs than offshore drilling, particularly deepwater drilling, and therefore is not as dependent on high oil prices (though currently oil prices are high enough that oil and gas companies are quite happy to drill offshore).
Pretax income from continuing operations is up compared to a year ago after adding back some special items, going by Nabors Industries Ltd. (NYSE:NBR)’s results from the second quarter of 2013, as management has cut costs in line with decreases in revenue. The sell-side believes that the company will earn $1.23 per share next year, which reflects an expectation that net income will pick up next year. The forward P/E is only 12 if that forecast proves correct, which is actually a premium compared to where some offshore contract drillers such as Transocean trade. Investors should note that the stock’s beta is 2.9.
As a result, even taking into account the insider purchases at these three firms, none of them seems like an excellent value at this time. Ingersoll-Rand PLC (NYSE:IR)’s financials don’t inspire a good deal of confidence in the company, and while Nabors Industries Ltd. (NYSE:NBR) might be expected to improve its business in the future investors should at least consider alternatives in the drilling space first. eBay Inc (NASDAQ:EBAY) should experience at least moderately higher earnings over the next several years, but a good deal of future growth is already priced in at current levels.
Disclosure: I own no shares of any stocks mentioned in this article.
