Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds, including billionaire Dan Loeb’s Third Point. We’ve found that these filings can be useful for investors in a number of ways- for example, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio based on these findings outperformed the S&P 500 by 33 percentage points in the last 11 months.
We also maintain a database of insider trading activity, having observed that studies tend to show a small outperformance effect for stocks bought by insiders (read our analysis of studies on insider trading). While investors can’t buy every insider purchasing opportunity, we can treat common picks between insiders and a manager such as Loeb similarly to a stock screen and take a brief look at these names to see if any look interesting. Read on for our quick take on five stocks which at least one insider has bought in the last three months and which Third Point reported owning at the end of June (or see Loeb’s stock picks over time).
The first stock satisfying these criteria is American International Group Inc (NYSE:AIG). Third Point was one of a number of funds reporting a position in the insurer, which made our list of the most popular stocks among hedge funds last quarter (check out the full top ten list). American International Group Inc (NYSE:AIG) trades at a significant discount to the book value of its equity with a P/B ratio of 0.7. In addition the company’s profits have risen as it sells off non-core assets (which may lead to a more focused management) and Wall Street analysts expectations for 2014 imply a forward P/E of only 11.
Third Point owned 1.7 million shares of Tiffany & Co. (NYSE:TIF) at the end of June; we had recorded a company officer buying the stock in the later part of that month. Markets are giving the jewelry retailer a premium valuation, with trailing and forward P/Es of 25 and 20 respectively. While sales were up nicely in the second quarter of 2013 versus a year earlier, Tiffany & Co. (NYSE:TIF)’s margins came down with the result being an only 3% rise in net income. In addition, many investors might see the stock’s dependence on discretionary spending by upper middle class and upper class consumers as a potential risk factor.