American Express Company (NYSE:AXP), General Motors Company (NYSE:GM): Is Warren Buffett Being Supported by Bullish Insiders?

Page 1 of 2

Hedge funds and high-level insiders are inherently in the know when it comes to their investment decisions. Generally speaking, the former has greater access to in-depth equity research than the average retail investor, particularly in the small-cap space. Moreover, transactions made corporate executives—especially when they’re bullish—send clear “buy” signals if you recognize where to look.

How do we know this?

BHFI, screenshot courtesy of MarketWatchAt Insider Monkey, we teamed up with MarketWatch to create the Billionaire Hedge Fund Index, which returned 24.3% last year versus 16% for the S&P 500 ETF (NYSEARCA:SPY). Historically speaking, imitating hedge funds’ top picks has outperformed the market by 2 percentage points annually, and their most popular small-cap investments generated an outperformance of more than 15 percentage points a year (check out how to use this strategy yourself).

Moreover, our research on insider buying indicates that a similar market-beating potential exists, of about 7 percentage points per year on average (details here). Keeping this in mind, it’s useful to parse mega-hedge fund managers’ stock picks down to those that have positive insider sentiment.

When we use the term “smart money,” one can reasonably infer that Warren Buffett is one of the smartest, if not the smartest of his peers. Buffett’s Berkshire Hathaway serves as a great blueprint for long-term investors, and the holding company’s stock itself has been a beast of an investment as well. Using our database of quarterly 13F filings from the SEC, we can discern which of Buffett’s stock picks have had at least one insider buy over the past 90 days (see Warren Buffett’s favorite investments).

Now, it’s no secret that Buffett prefers to hold a relatively concentrated equity portfolio, but it may surprise you that of his 38 long positions, only five have seen insider buying activity over the past three months. This ratio, which is relatively consistent with NYSE and NASDAQ averages, indicates that this group is extra special. Without further ado, let’s reveal this “fab five.”

American Express Company (NYSE:AXP) is a mainstay in Buffett’s top five 13F holdings, and has generated solid returns post-recession and more recently as well. Shares of the credit and lending behemoth have gained nearly 16% over the past year, as the company itself has generated earnings beats in four of its past five quarters. Director Jan Leschly bought a little over 70,000 shares last November, the largest AXP insider purchase we have on record (see full history).

DaVita HealthCare Partners Inc (NYSE:DVA) is another favorite of Buffett; he’s upped his stake in this dialysis service company in three consecutive quarters since initiating the position back in Q4 2011. The primary bullish thesis behind DaVita is its ability to ride existing healthcare tailwinds to top and bottom line prosperity. The sell-side estimates accelerating earnings growth, at 13%-14% annually over the next five years. DaVita’s ability to generate consistent free cash flow also opens up the door for more acquisitions down the road. Berkshire, which is classified as a “large shareholder” by the SEC and is therefore technically an insider as well, now holds more than 14 million shares (see the full history here).

Liberty Media Corp (NASDAQ:LMCA), meanwhile, was a new position for Buffett in the fourth quarter of 2011, and cracked his top 20 last summer. The company spun off Starz (NASDAQ:STRZA) in the second week of January, and about three weeks earlier, Chairman John Malone bought a whopping 490,000 shares. Now spun off from under the Liberty umbrella, Starz should have quite a bit of interest in the hedge fund industry in addition to Buffett, including Steve Cohen, Jim Chanos and David Einhorn (see David Einhorn’s favorite stock picks).

General Motors Company (NYSE:GM) has seen multiple insiders purchasing shares over the past six months, and when we shrink this time frame down to 90 days, Director Thomas Schoewe comes into focus. Schoewe bought close to $100,000 worth of GM in early November, and since then, shares have risen 11.5%. At the moment, investors are eagerly awaiting the automaker’s Q4 earnings report on Valentine’s Day next week. GM has beaten Wall Street’s top and bottom line estimates in four of the past five quarters, and currently trades at a sub-1.0 PEG and is near parity with its book value per share.

What company is last on our list?

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Jobs that May Exist in the Future

The Absolute Best States to Shop in the US

5 Best States for Golf Adventures

Top 15 Places To Visit Before You Die

10 Most Expensive Smartphones in the World

10 States with Lowest Physician Density

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!