In theory, insiders should be reluctant to buy stock in the company and so give their personal financial situation more exposure to negative surprises. It really only makes sense to buy if an insider is confident in the company’s future prospects. Studies show that because insiders tend to buy stock when the company is doing well or about to do well, mimicking their purchases can outperform the market on average (see more about studies on insider trading). Of course, investors can’t follow every insider purchase, but we think that a look at which companies have been seeing insider trading recently can be a useful screen for further research. Here are five stocks that insiders have been buying:
Multiple insiders have been buying at Chemtura Corporation (NYSE:CHMT), a $2 billion market cap specialty chemicals company. See more details about the insider purchases. Consensus insider buying is a particularly bullish signal and so we looked particularly closely here. Chemtura trades at 18 times trailing earnings, but in recent quarters net income has been pulled down by special charges. With those expected to dissipate over time it’s reasonable to expect its numbers to be considerably better in the future. Billionaire James Dinan’s York Capital Management owned 2.8 million shares of Chemtura at the end of the third quarter, though this was down 12% from the beginning of July (check out more of billionaire Dinan's stock picks).
The CEO of AK Steel Holding Corporation (NYSE:AKS) bought 100,000 shares of stock at an average price of $3.85. Steel companies such as AK and United States Steel Corporation (NYSE:X) have been hit hard by poor demand stemming from weak macro growth in Europe and China. AK Steel’s stock is down 50% in the last year, and the company is unprofitable on a trailing basis. Analysts expect it to have positive earnings in 2013- the forward P/E is 24- and the CEO buying is a positive sign. It’s likely that other steel companies, or possibly metallurgical coal producers tied to steel production, might be performing better at the moment and face a similar upside if the steel market recovers.