Investors cannot mimic every insider purchase, but they can use the knowledge that stocks bought by insiders tend to narrowly outperform the market on average (learn more about studies on insider trading) and think of insider purchases as being much like a stock screen. It’s similarly a bad idea to buy a stock because of a low earnings multiple or high insider ownership- these screens are best used to identify ideas for further research, and insider purchases can yield a list of stock ideas in the same way. Here are five stocks that insiders have been buying recently:
A Bank of America Corp (NYSE:BAC) Board member bought 20,000 shares at an average price of $11.53. The same insider had bought shares at about $9.50 in early November 2012. In the third quarter of 2012, Bank of America was one of the most popular stocks among hedge funds (see the full top ten list). Bank of America stands out among its peers for trading at a considerable discount to book value (the P/B ratio is 0.6) but in terms of earnings (the forward P/E is 9) it’s actually not particularly cheap. As a result, when Insider Monkey last looked at the stock we thought that some other banks made for better investments. Read more about the insider purchase and which large banks we like instead.
Health insurer UnitedHealth Group Inc. (NYSE:UNH) also had a member of its Board of Directors buy shares of the stock. UnitedHealth is up 25% from its levels a year ago, but is still a potential value stock with trailing and forward P/Es of 11 and 9 respectively. The company has been experiencing modest growth on both top and bottom lines, but earnings growth does not need to be high at its current pricing for the stock to prove undervalued. Billionaire Dan Loeb’s Third Point owned 2 million shares at the end of September (find Loeb's favorite stocks). Investors should consider UnitedHealth and other health insurance stocks, as they tend to be cheap and tend to have low betas in case of a bear market.
Read on for our coverage of three more insider purchases, including one at TD Ameritrade: