Studies show that stocks bought by insiders exhibit a small outperformance effect (read our analysis of studies on insider trading) and our explanation for this finding is that insiders should generally only buy when they are confident in the company’s prospects (in other cases, it is rational for them to diversify their wealth rather than increase company-specific risk). We track insider purchases so that investors can review big buys by insiders and decide if the stock is a good target for further research. Here are five stocks that insiders have bought recently:
A Board member at Philip Morris International Inc. (NYSE:PM) bought 1,000 shares of stock on May 28th at an average price of $95.08 per share. The cigarette company pays a dividend yield of 3.7%, which while high is actually lower than that of some of its peers. Philip Morris International Inc. (NYSE:PM)’s business has been about flat, with little change in revenue or earnings compared to a year ago. In addition to insider trading activity, we also maintain a database of quarterly 13F filings from hedge funds, using the included information to develop investment strategies (for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). According to its filing, billionaire Ken Fisher’s Fisher Asset Management owned 5.6 million shares of Philip Morris International Inc. (NYSE:PM) at the end of March (find Fisher’s favorite stocks).
Our database shows a large insider purchase at AOL, Inc. (NYSE:AOL) in late May. While the well-known Internet subscription business segment is declining, AOL, Inc. (NYSE:AOL) has moved aggressively into media (it owns the Huffington Post, for example) and so advertising sales is causing total revenue to rise. Earnings were up 23% last quarter from their levels in the first quarter of 2012, though the stock is priced for further growth already with a forward P/E of 18. D.E. Shaw, a large hedge fund managed by David Shaw, reported a position of 2.3 million shares of AOL, Inc. (NYSE:AOL) in its 13F though this was down considerably from three months earlier (see D.E. Shaw’s stock picks).