We track corporate insiders because we believe ordinary investors are more likely to achieve better-than-market returns simply by monkeying insiders. The reason is simple. Insiders have more information about their companies and understand their businesses way better than outside investors. Moreover, their incomes are often linked with the performance of their companies. It makes no sense for them to increase their exposure unless they believe their purchases have a high probability of being profitable. Therefore, stocks with significant insider purchase are always worth taking a closer look.
In this article, we are going to discuss a few large-cap stocks insiders have been buying recently. All companies have market caps of at least $10 billion and the transactions were reported to SEC between June 11 and June 15.
Bank of America Corp (BAC): On June 12, Director Charles Gifford purchased 482,794 shares of Bank of America stocks for a total of $3.55 million, or $7.36 per share. The transaction was reported to SEC the following day, and was the insider purchase with the largest dollar value on that day. Now, the stock is trading at $8.11 per share. Hedge fund managers also love Bank of America. It is one of the most popular financial stocks among the 350+ hedge funds that we track. As of March 31, there were 87 hedge funds with Bank of America positions in their 13F portfolios. The most bullish money manager about Bank of America was Bruce Berkowitz. His Fairholme had nearly $1 billion invested in the stock at the end of the first quarter. John Paulson’s Paulson & Co also had $147 million invested in Bank of America (check out John Paulson’s top stock picks).
For the first quarter of 2012, Bank of America reported a net income of $653 million, down from $2.78 billion for the same quarter last year. However, the lower net income was the result of several one-time items, such as negative debt valuation adjustments and fair value adjustments. After ruling out these one-time items, Bank of America’s adjusted EPS for the first quarter this year was $0.16, beating the Wall Street consensus of $0.12. Moreover, the company’s capital ratios also improved. As of March 31, 2012, Bank of America’s Tier 1 common equity ratio was 10.78%, up 92 bps compared with the same quarter-end last year. Going forward, the company is expected to earn $0.62 per share in 2012 and $1.02 per share in 2013. Its 2013 P/E ratio is below 8, versus the industry average of around 10. We think the market is over concerned about the risk and BAC is trading at a price below its intrinsic value.
Fastenal Company (FAST): On June 8, Executive Vice President Leland Hein purchased 3,000 shares of Fastenal at $39.4471 per share and another 300 shares at $39.44 per share. Another EVP, James Jansen, had purchased 1,300 shares at $39.994 per share on the previous day. Currently the stock is trading at $38.91 per share. A few hedge fund managers are also in favor of Fastenal. Louis Navellier’s Navellier & Associates initiated a brand new $53 million of Fastenal during the first quarter (check out Louis Navellier’s top stock picks). Cliff Asness and Tom Russo are also bullish about the company.
Fastenal had a soft year in 2009 – its revenue fell below $2 billion – but the company recovered quickly. It generated $2.77 billion in sales in 2011, up 22% from $2.27 billion for 2010. This year, the company’s revenue is expected to rise by 19%, according to the S&P. In addition to revenue growth, Fastenal also demonstrated robust EPS improvements over the past couple years and that positive trend is expected to continue. Analysts expect the company to make $1.43 per share in 2012 and $1.71 per share in 2013, up from $1.22 per share in 2011. Its average earnings growth is expected to be 17% per year. Fastenal is currently trading at 28X its 2012 earnings, a premium to the industry average of 20.
Other Companies: Over the past week, insiders also reported buying 74,900 shares of VMware (VMW). EMC Corp (EMC) bought 37,600 shares of VMware at $93.0027 per share on June 8 and another 37,300 shares at $93.7777 on June 7. EMC has been continuously purchasing VMware over the past month (check out our previous article about the transactions). Jim Simons is bullish about VMware as well. His Renaissance Technologies had $177 million invested in the company at the end of March (see billionaire Jim Simons’ largest bets).