Studies show that stocks bought by insiders tend to slightly outperform the overall market (read more about studies on insider trading). We think that this is because insider purchases signal that the insider is more confident in the company than usual; the benefits of diversification are high enough that they should overcome any casual desire to purchase stock. Of course, insiders aren’t always correct in their assessment, but confidence from insiders can be treated more or less like a stock screen in that a list of companies with recent insider purchases can be reviewed for value prospects. Here are five stocks which insiders have bought recently:
A Board member at Apache Corporation (NYSE:APA) , an energy exploration and production company which derives about 80% of its revenues from oil, bought 2,000 shares at an average price of a little over $73 per share. Apache has fallen 30% in the last year, and earnings were down in 2012 from their levels a year earlier. Wall Street analysts expect the company to rebound, and as a result the forward P/E is only 7. That is lower than similar multiples at other energy companies, though many peers are actually priced at a discount in terms of trailing earnings. Billionaire Ken Griffin’s Citadel Investment Group was a heavy buyer of Apache last quarter and owned 2.6 million shares at the end of December (see Griffin’s stock picks).
J. Bennett Johnston, a former U.S. Senator who is now an advisory Director at Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), directly purchased 16,000 shares of the stock on March 1st. Freeport-McMoRan dived after the company announced acquisitions of two oil and gas companies in December, which many market watchers worry will weaken its focus on its core mining businesses. Our impression is that shareholder value may have taken enough of a hit, with Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) trading at 7 times forward earnings estimates and paying a dividend yield of about 4%. We’d also note that a number of hedge funds have been buying shares.
Ultra Petroleum Corp. (NYSE:UPL) had a company officer buy 3,000 shares of stock at an average price of $16.20 per share. In contrast to Apache Corporation (NYSE:APA), Ultra generates the majority of its revenue from natural gas sales; as a result, low natural gas prices have caused a steep decline in pretax income. Peers such as Chesapeake and SandRidge are also suffering under current market conditions. The sell-side is projecting $1.18 in earnings per share for 2013, which would be a current-year P/E of 14. While that would qualify Ultra for value status we would not want to be so dependent on analyst forecasts and so we would avoid the stock.
