Stocks bought by insiders tend to outperform the market, and the effect is particularly strong when multiple insiders are buying (learn more about studies on insider trading). We think that this is because insider purchases signal that these individuals are very confident in the stock’s prospects- so confident that they buy when economic theory suggests they should be trying to sell and therefore reduce their exposure to any particular company. It makes sense that when more than one insider comes to this conclusion that confidence has to be particularly high- though of course even in this case it’s important to study the company to make sure that it might actually be a good value. Here are four healthcare stocks that multiple insiders have bought shares of within the last three months:
Synageva Biopharma Corp (NASDAQ:GEVA), a development stage pharmaceutical company, has been one such target of insider purchases in the healthcare sector. Synageva is developing a drug designed to treat lysosomal acid lipase deficiency as well as other products aimed at rare diseases and medical conditions. As a development stage company, it is currently unprofitable and its net losses are actually expected to grow in 2013 as well. That makes it a bit speculative of an investment for us, particularly as we have no understanding of Synageva’s products. Baker Brothers Advisors, a healthcare focused fund which is managed by Felix and Julian Baker, reported a position of 8.4 million shares at the end of Q3 2012. This made it one of the five largest holdings in Baker Brothers’ portfolio (find more of its favorite stocks).
Another healthcare stock that multiple insiders have been buying is Valeant Pharmaceuticals Intl Inc (NYSE:VRX). The $20 billion market cap pharmaceutical company was one of the top picks in the portfolio of Jeffrey Ubben’s ValueAct Capital (see more stocks Ubben likes) and Tiger Cub Andreas Halvorsen’s Viking Global reported a large position as well (research more stocks Halvorsen owns). While Valeant’s revenue numbers have been looking good, earnings have been down. Value investors might be more comfortable looking at Teva Pharmaceutical Industries Ltd (NYSE:TEVA), which carries trailing and 2013 P/E multiples of 15 and 7 respectively. Still, the optimism from two company officers and one member of Valeant’s Board of Directors might make the company worth at least some investigation into whether it can stabilize and grow its business.
Two medical device companies completed our list: