Insiders Have Bought BlackRock, Adobe, and More

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We’ve reviewed a number of studies on insider trading and have concluded that stocks bought by insiders narrowly outperform broader market indices (read more about studies on insider trading). Our impression is that this is because insiders’ pocketbooks are already dependent on the company, and so they should generally diversify their investments to avoid too much exposure to any company-specific events. Insider buys therefore signal that the stock’s prospects are believed to be so strong that they overcome this hurdle. Of course, investors shouldn’t buy every stock that insiders like- not that they can anyway- but we think that it can be useful to review these stocks and then do more research if they (or a similar company) turn out to be attractive buys. Here are five stocks that insiders have bought recently:

A member of the Board of Directors at BlackRock, Inc. (NYSE:BLK) bought $100,000 worth of the stock at $233.59 per share. The asset management industry in general has been performing very well recently, with BlackRock and many of its peers such as State Street Corporation (NYSE:STT) and Franklin Resources, Inc. (NYSE:BEN) reporting earnings growth rates of about 20% in their most recent quarter compared to the same period in the previous year. BlackRock’s trailing P/E is 17- slightly higher than these other companies we’ve mentioned- and we think that asset management could be a source of several potential value ideas. Read more of our thoughts on BlackRock and its peers.

VALUEACT CAPITAL

Amy Banse, a Board member at Adobe Systems Incorporated (NASDAQ:ADBE) and the head of Comcast Corporation (NASDAQ:CMCSA)’s Comcast Ventures, bought 5,000 shares of Adobe’s stock on January 16th. Adobe is a top pick at Jeffrey Ubben’s ValueAct Capital; that fund had $1 billion invested in the stock at the end of the third quarter of 2012 (check out more of Ubben’s stock picks). In the third quarter, Adobe’s revenue was flat from a year earlier and operating income was actually down slightly, so we think that the current valuation- the trailing and forward P/Es are both in the 20s- may actually be too high.

Jack Daniels and Southern Comfort manufacturer Brown-Forman Corporation (NYSE:BF.B), which owns other brands of alcoholic beverages as well, had its chief production officer buy just over 2,000 shares of the stock at an average price of $63.44. Brown-Forman is another company where we’re not wild about the pricing: the stock trades at 25 times trailing earnings, with moderate earnings growth in its last quarterly report compared to the same period in 2011 but flat sales. Comparable companies were generally valued at over 20 times trailing earnings as well. Chilton Investment Company, managed by billionaire Richard Chilton, was buying the stock in the third quarter (find Chilton’s favorite stocks).

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