Insider information pays. While insider purchases do not always mean investors should also buy the stock, on the average, when an insider purchases stock in a company it tends to outperform the market over the next 12-month period. So, focusing on stocks with insider transactions, especially large purchases, is a good starting point to pick which stocks to analyze.
In this article, we will take a closer look at the biggest insider purchases reported to the SEC over the past week. We are going to focus on stocks with large insider purchases and market caps of above $1.3 billion.
Valhi (VHI): Harold Simmons, Director at Valhi, has been continuously purchasing this stock over the past year. Simmons filed with the SEC on April 9, 11, 12, and 13 for purchasing 4000 shares at an average of $49.74 per share, 4000 shares at $48.07, 1288 shares at $51.25, and 2000 shares at $51.50 respectively. He started his purchases last year in February when VHI was trading around $21 per share. He has a great track record. On April 13, the stock closed at $51.35 a share. Hedge fund manager Murray Stahl and Jim Simons are also bullish about Valhi. Stahl’s Horizon Asset Management had $11 million invested in Valhi at the end of the fourth quarter while Simons’ Renaissance Technologies had $2.6 million invested in the stock.
We like Valhi. Over the past couple of years, the company has demonstrated both strong revenue and earnings growth. In the most recent quarter, Valhi’s revenue rose by nearly 16% compared with the same quarter a year ago, heavily beating its industry average of 4.5%. In turn, the strong revenue growth helped boost the company’s earnings. Its net income increased by over 200% to $55.60 million. During the past year, Valhi’s annual EPS was also increased, from $0.42 to $1.91 per share.
Vistaprint (VPRT): Vistaprint was purchased by one insider recently. Smith Thomas, a large shareholder of Vistaprint, bought 100,000 shares of the stock for a total of $4 million, or an average of $39.59 per share, on April 3 and April 4. The transaction was reported to SEC on April 9. The stock was closed at $37.32 on April 13. Jim Simons is in favor of Vistaprint as well. His fund Renaissance Technologies disclosed a $16 million stake in Vistaprint at the end of 2011. Ken Griffin, Chuck Royce, and Israel Englander were also bullish about the stock.
Vistaprint is trying to maintain its rapid development by investing in technology that increases efficiency and expanding internationally through M&A activities. Vistaprint’s strong balance sheet has not only enabled it to make acquisitions, but also enabled it to buy back shares. Over the past three years, the company has announced three notable share repurchase programs, which has helped boost its EPS. We expect Vistaprint will continue to repurchase its outstanding shares, benefiting its shareholders. This high capital expenditure is likely to hurt the company’s earnings in the near term, but we believe its investments and M&A strategy should benefit the company over the long term.
Other Notable Insider Stocks: Insiders also bought 900 shares of Western Gas Partners LP (WES), 3000 shares of Acuity Brands Inc (AYI), 2000 shares of EV Energy Partners LP (EVEP), and 1000 shares of Cedar Fair LP (FUN). Energy companies Western Gas and EV Energy have current P/E ratios of about 25, higher than the industry average of 16.5. We prefer energy stocks with larger caps and lower multiples, such as BP Plc (BP) and Exxon Mobile Corporation (XOM). On the other hand, Acuity Brands and Cedar Fair have attractive valuation levels. Both of them have forward P/E ratios of below 15, lower than the average of their peers.