Economic theory suggests that insiders should generally only buy the company’s stock if they are particularly confident in the business’s prospects, preferring to diversify their wealth in other cases, and studies do in fact show a small outperformance effect for stocks bought by insiders. Read our analysis of studies on insider trading. In addition to tracking insider trading activity, we also follow quarterly 13F filings from hundreds of hedge funds including Renaissance Technologies, whose founder Jim Simons is now a billionaire. We’ve found that 13Fs can be useful sources of investment information (for example, the most popular small cap stocks among hedge funds tend to outperform the S&P 500 by an average of 18 percentage points per year). As such we like to compare hedge funds’ recent filings to recent insider activity. Here are the five largest holdings in Renaissance’s portfolio as of the end of March which at least one insider has bought in the last three months (or see the full list of stocks the fund reported owning):
At two points in the last three months, an insider at Philip Morris International Inc. (NYSE:PM) has purchased 1,000 shares of the stock; the cigarette company was one of Renaissance’s ten largest holdings at the end of Q1. The 3.7% dividend yield could certainly be appealing, although some other cigarette companies pay higher yields. Business has been stagnant going by recent reports, though earnings per share are expected to rise and as a result the forward P/E is 15. Billionaire Ken Fisher’s Fisher Asset Management reported a position of 5.6 million shares in its own 13F (find Fisher’s favorite stocks).
The fund more than doubled its stake in The Home Depot, Inc. (NYSE:HD) between January and March, while we recorded an insider buying shares towards the end of May at prices around $80 per share. Home improvement stores have been a popular way to play the housing recovery, and The Home Depot, Inc. (NYSE:HD)’s stock is up 50% in the last year. Earnings were up 19% in its most recent quarter compared to the same period in the previous fiscal year, though the stock is still priced for growth. Phil Gross and Robert Atchinson’s Adage Capital Management disclosed ownership of 2.1 million shares as of the end of the quarter.