Why would an insider ever buy additional shares of their company’s stock? Why not diversify their exposure to the market by instead investing in other businesses? Our answer to this line of thinking is that generally, insiders will avoid buying, and in fact will often sell shares for this perfectly understandable reason. However, when they do buy it may be because they are extremely confident in the company’s prospects. On average, stocks bought by insiders do outperform the market (read more about studies on insider trading) and we think this is why. Luckily, thanks to disclosures, investors can find stocks bought by insiders and use it as a list of suggestions to review further. Here are five stocks that insiders have bought recently:
Thomas Schoewe, a Board member at General Motors Company (NYSE:GM), bought about 3,800 shares on November 6th at an average price of $25.95 per share. GM is one of billionaire David Einhorn’s favorite stocks, with the manager of Greenlight Capital naming it as one of his two long picks at last month’s Value Investing Congress. On a quantitative basis GM looks attractively priced at 9 times trailing earnings and 6 times consensus estimates for 2013, but that actually isn’t much cheaper than other auto manufacturers and auto-related companies. In addition, insiders have been buying GM fairly consistently since the IPO two years ago with little to show for it in most cases.
Apache Corporation (NYSE:APA)’s Vice President of Investor Relations, Brady Parish Jr., recently bought 4,800 shares at an average price of $80.96. Apache is an oil and gas exploration and production company which has significant growth opportunities from shale plays in the U.S. The sell-side is more bullish than investors, and so the stock trades at a forward P/E of only 8. Many other energy companies are also trading at value levels, and Apache’s bottom line performed poorly in the third quarter versus a year ago, so it might not be the best pick for its industry even though it could prove undervalued. Learn more about Apache.
$1.1 billion market cap business intelligence software company MicroStrategy Incorporated (NASDAQ:MSTR) saw Board member Carl Rickertsen buy 3,000 shares at an average price of $96.51. The stock is priced for growth at 51 times trailing earnings, but has been struggling recently with its top and bottom lines about flat last quarter compared to the third quarter of 2011. As a result we don’t think that we would be buyers of this stock either.
Chairman of the Board at Travelzoo Inc. (NASDAQ:TZOO) Holger Bartel bought 200,000 shares of the stock on November 2nd at an average price of $18.39 per share. Travelzoo is a $280 million market cap deal site providing discounted travel and entertainment products (its daily dollar volume is over $2 million). Travelzoo’s revenue was down 8% in the third quarter from a year ago, which contributed to a 42% drop in earnings. Investors have soured on deal sites and so the earnings multiples- yes, the company is actually profitable- are in the teens. However, with 31% of the shares held short there’s clearly widespread bearishness in the market.
Also at a fairly low market capitalization but also posting sufficient liquidity for most investors is Audience Inc (NASDAQ:ADNC), whose VP of Engineering Asher Medina bought over 12,600 shares earlier this month at $7.58 per share. Audience is a semiconductor company whose products are used to process video and audio signals. The stock is down 63% from its May IPO after the company announced in September that it may no longer be a supplier for future Apple products. As a result, its good historical numbers aren’t as relevant as the fairly low earnings projections for 2013. Investors should probably avoid it.