Economic theory posits diversification as one of the key principles on investing. Diversification does not only suggest that an investor should not concentrate their buying on one company or industry, it also suggests that it may be unwise for too much wealth to be invested in the company a person works for; this would leave both income and wealth vulnerable to company-specific shocks. Insider purchases therefore suggest enough confidence in the company to ignore the benefits of diversification, and so it is not surprising that stocks bought by insiders tend to narrowly beat the market (learn more about insider purchases). We track insider purchases for this reason and are particularly interested in stocks that multiple insiders are buying, since these “consensus buys” are even stronger (though, of course, not certain) bullish signals. See our analysis of studies on consensus insider purchases. We have gone through our database of insider trading filings and here are four services stocks that multiple insiders have bought in the last three months:
Multiple insiders have made significant purchases of stock in The Western Union Company (NYSE:WU) in the last three months. The payment services company’s stock is down 26% in the last year as the market suspects that it will be outcompeted by eBay Inc (NASDAQ:EBAY)’s PayPal and other similar services. It trades at 10 times consensus earnings for 2013- and that incorporates sell-side expectations for a decrease in net income- though in the third quarter of 2012 revenue edged up slightly from its levels a year earlier and earnings rose 12%. Billionaire Leon Cooperman’s Omega Advisors reported owning 4.4 million shares of the stock at the end of September (check out Cooperman’s stock picks). We’d also note that Western Union pays a dividend yield of well over 3% and so offers income alongside a potential value play. It would be worth looking into.
Green Dot Corporation (NYSE:GDOT), which is best known for its menu of prepaid debit and gift cards to consumers with limited banking options, is another stock that insiders have been buying. Read our previous coverage on insider purchases in Green Dot. The markets have also been savaging this company, with the stock price falling 53% since a year ago; while revenue was up in Q3 2012 compared to the same period in the previous year, net income was down 20%. This has left Green Dot trading at trailing and 2013 P/E multiples of 11 and 10, respectively. With Wall Street analysts bullish on the company over the next several years, the five-year PEG ratio is 0.6. It’s possible that the market has overreacted to poor business conditions here as well.