Investors are always hard-pressed to find ways to outperform the market averages, as stocks are generally priced at their appropriate price. However, one screening tool that has proven to be effective in determining whether a stock is moving higher is insider buying, for one simple reason: they buy stocks, just like us, to make more money. In addition, they arguably have the best view of the company, being a part of the day-to-day operations, and may have a large investment of their own that they like to see increase in value. Below are a couple stocks with strong insider buying.
Health care giant UnitedHealth Group Inc. (NYSE:UNH) out of Minnesota is simply a giant, with trailing twelve months revenue exceeding $110 billion and a market capitalization in excess of $55 billion. The company has been range-bound the past year with the current stock price virtually in the middle of its $50.32-$60.75 price range. Board director Rodger Lawson seems to think there is more upside ahead, filing an SEC Form 4 on Jan. 22 showing the purchase of 2,000 shares on the open market at $54.42, equating to almost $110,000 worth of stock.
Considerable insider buying is always encouraging, and when we look deeper into the company’s fundamentals the valuations look appealing. Trading at barely half its sales to enterprise value and at a discount to its expected growth rate, while trouncing those estimates in three of the last four quarters, has me thinking that “the Street” is underappreciating UNH. Add in its consistently growing 1.5% dividend yield, which currently stands at a paltry 15% payout ratio, and investors can confidently expect that to continue to be raised in the near future. Competitor Aetna Inc. (NYSE:AET) is worth a look as well to potentially split one’s position and take out company-specific risk. The company has similarly attractive valuations, while beating the consensus analyst estimates the past two quarters, displaying that it is currently operating well. Add in its 1.6% dividend yield and paltry 13% payout ratio and one can reasonably believe, like with UNH, that the dividend will be increased here again soon as well.
Diversified software giant Adobe Systems Incorporated (NASDAQ:ADBE) is most well-known for its Acrobat family of products. Since its founding just over 30 years ago, the company has become a juggernaut with well over $4 billion in annual sales and a market capitalization near $20 billion. The stock is sitting right near its $38.78 52-week high and one would think that now is the time to take some profits. Board director Amy Banse thinks otherwise, buying 5,000 shares on Jan. 16 at $38.06 per share, equating to almost $200,000 worth of stock. The stock operationally has performed well, either meeting or exceeding consensus analysts’ estimates the past four quarters while expecting greater than a 10% per annum growth rate for the next five years. The company does not pay a dividend though, which is discouraging to me, but with approximately $2 billion in net cash and healthy returns on equity exceeding 13%, Adobe is worth a look.