We track corporate insiders because we believe that they have an edge over ordinary investors. Academic research has shown that insider purchases on average outperform the market in the following 12-month period. Even small insider purchases are marginally profitable. The reason is simple. Insiders usually have a lot of exposure to their companies’ performance. They will only increase their exposure when they have strong reasons to believe that their purchases have a high probability of being profitable.
In this article, we are going to focus on the cheap US stocks insiders bought recently. All companies have at least $2 billion market cap, P/E ratio lower than 15, and were purchased by at least one insider within the past month. The market data is sourced from Finviz.
|WFC||Wells Fargo & Company||1||10.5|
|DD||E. I. du Pont de Nemours and Company||1||13.78|
|PNC||PNC Financial Services Group Inc.||1||9.35|
|BBY||Best Buy Co. Inc.||1||8.93|
|RS||Reliance Steel & Aluminum Co.||1||13.08|
|RNO||Rhino Resource Partners LP||1||14.24|
|GCI||Gannett Co., Inc.||1||7.18|
|NIHD||NII Holdings Inc.||1||11.54|
|IEP||Icahn Enterprises, L.P.||1||6.23|
|LXK||Lexmark International Inc.||1||8.43|
|KRO||Kronos Worldwide Inc.||1||9.79|
The cheap stock with the most insider purchases over the past month is US Bancorp (USB). It was purchased by two insiders. Joseph Hoesley purchased 1500 shares at $25.55 on January 27. Three days earlier, Lee Mitau also bought 1500 shares at $25.35 per share. Now USB is trading at $27.83 per share. It has a market cap of $53B and a low P/E ratio of 11.33. It also has a low forward P/E ratio of only 9.51. US Bancorp is a multi-state financial services holding company. It recently reported fourth-quarter net income of $1.4 billion in 2011, compared with $1.3 billion for the same quarter a year earlier. Its annual net income in 2011 is $4.9 billion, up from $3.3 billion in 2010. USB is also quite popular among hedge funds. There are 36 hedge funds with USB positions at the end of September. Warren Buffett is the most bullish hedge fund manager about USB. His Berkshire Hathaway had $1.6 billion invested in the stock. Andreas Halvorsen, Prem Watsa, Lee Ainslie, and Ken Griffin are also among USB investors.
Icahn Enterprises LP (IEP) has the lowest P/E ratio among the stocks listed above. It has a market cap of $3.2B and a P/E ratio of only 6.23. IEP was also purchased by one insider during the past month. Carl Icahn, director at the company, bought 12,583,829 shares of IEP at $36.7933 per share on January 20. Now IEP is trading at $37.57 per share. At the end of the third quarter, Carl Icahn’s Icahn Capital LP has $2.9 billion invested in IEP. Murray Stahl’s Horizon Asset Management also reported to own $50 million worth of IEP shares at the end of September.
One mega-cap cheap stock that insiders are bullish about is Wells Fargo & Company (WFC). It was purchased by one insider during the past month. On December 28, John Baker, director at Wells Fargo, bought 728 shares at about $27.26 and another 248 shares at about $27.30 per share. Now WFC is trading at $29.11 per share. It has a market cap of $156B and a low P/E ratio of 10.5. Wells Fargo reported net income of $4.11 billion for the fourth quarter of 2011, up from $4.06 billion for the same quarter a year earlier. Its annual net income for 2011 is $15.9 billion, compared with $12.4 billion for 2010. WFC is also very popular among hedge funds. At the end of the third quarter, there are 69 hedge funds disclosed to own WFC in their 13F portfolios. Warren Buffett is bullish about WFC as well. Berkshire Hathaway had $8.7 billion invested in WFC at the end of September. John Paulson is also in favor of the stock. Paulson & Co had $575 million invested in WFC at the end of the third quarter. Ken Fisher and Whitney Tilson are also bullish about Wells Fargo.
Other cheap US stocks insiders are bullish about include E. I. du Pont de Nemours and Company (DD), PNC Financial Services Group Inc (PNC), Best Buy Co Inc (BBY), KeyCorp (KEY), Reliance Steel & Aluminum Co (RS), Rhino Resource Partners LP (RNO), Gannett Co Inc (GCI), NII Holdings Inc (NIHD), Lexmark International Inc (LXK), and Kronos Worldwide Inc (KRO). Stocks with low P/E ratios are more likely to be undervalued by the market compared with stocks trading at higher P/E ratios. But there are some exceptions and some low P/E stocks deserve these valuations. For example, most bankrupt companies become low P/E stocks at one point. So investors should carefully research these low P/E stocks before investing. Studying low P/E stocks with insider purchases recently is a good start point to find cheap stocks that are worth investing in. We encourage investors to do some in-depth research on the cheap stocks that insiders are buying for their own portfolios.