While over the last month or so we have devoted much of our time to analysis of the most recent round of 13F filings and developing investment strategies based on the included information (for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year), we have also kept an eye on insider trading activity. Studies show that insider purchases are weak bullish signals (read our analysis of studies on insider trading) and we think that this is because in normal times insiders are heavily incentivized to diversify their wealth rather than build up exposure to company-specific risks; it’s only when they are confident the stock will rise that they will actually buy shares (though, of course, they’re not always right). One way to take advantage of this is to treat insider purchases like a stock screen and review recent purchases in search of good buys. Here are five stocks that insiders have bought recently:
A member of Cigna Corporation (NYSE:CI)’s Board of Directors bought 4,200 shares of stock on March 6th at an average price of $59.30 per share. Cigna, a $17 billion health insurance company, recently acquired HealthSpring to increase its Medicare-related business with the result being substantial increases in revenue and earnings last quarter compared to the fourth quarter of 2011. Cigna trades at 11 times trailing earnings, which is more or less in line with other health insurers; we would imagine that many investors are concerned about potential government regulation of insurers if health care costs continue to rise.
Two insiders have been buying shares of Diebold Incorporated (NYSE:DBD), which manufactures ATMs, provides security services, and (most infamously) produces voting machines. Stocks bought by multiple insiders are particularly likely- though not certain- to beat the market. Last quarter was not a good one for Diebold, as it reported a net loss after earning substantial profits earlier in 2012. Consensus for 2014 has the stock trading at only 14 times forward earnings estimates, reflecting an expected improvement in net income. We’d also note that at current dividend levels the yield is rather high at about 4%.
Find three more stocks that insiders have been buying: