Our analysis of studies on insider trading has led us to conclude that stocks bought by insiders slightly outperform the market. Our explanation for this finding is that in order for insiders to buy their company’s stock- and, therefore, increase their own company-specific risk- they should be more confident than usual that the stock will do well. Otherwise, they would simply diversify their wealth in line with economic theory. We like to review recent insider purchases and take a brief look at each company so that investors can perform research on any interesting stocks- similar to how many people use stock screens in their decision making process. Here are five stocks which insiders have bought recently:
A member of Chesapeake Energy Corporation (NYSE:CHK)’s Board of Directors bought over 150,000 shares of stock on June 21st. The natural gas producer is valued at 10 times forward earnings estimates, although currently the company is struggling and has only low profitability due to poor conditions in the natural gas market. It might be best to hold off for now given how dependent the company is on nat gas prices. Our database shows another insider buying Chesapeake Energy Corporation (NYSE:CHK) earlier in the month; our evaluation of studies on insider trading shows that consensus insider purchases are particularly likely- though not certain- to beat the market (read more about consensus insider purchases).
A trust related to an insider at Dollar Tree, Inc. (NASDAQ:DLTR) bought 8,000 shares in late June at an average price of $49.76 per share. Dollar Tree, Inc. (NASDAQ:DLTR) is currently valued at 18 times its trailing earnings, and delivered a 15% increase in earnings in its most recent quarter compared to the same period in the previous fiscal year. Other dollar stores have not been performing as well, however, potentially signaling trouble for the industry. In addition to insider trading activity, we maintain a database of hedge fund positions culled from quarterly 13F filings. We use these filings to help us research investment strategies (for example, we have found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year) and they can also be used to track interest in individual stocks. We can see that billionaire Stephen Mandel’s Lone Pine Capital owned over 12 million shares at the end of March (see Mandel's stock picks).