Billionaire Stephen Mandel and Insiders Like American International Group Inc (AIG) And More

Company insiders should be unlikely to buy the company’s stock unless they are particularly confident in the business’s prospects; otherwise, economic theory holds that it is rational for them to diversify their wealth instead. This is one explanation for why stocks bought by insiders narrowly outperform the market on average (read our analysis of studies on insider trading) and one of the reasons why we like to track insider trading activity. We can also compare recent insider purchases to the portfolios of top hedge funds such as billionaire Stephen Mandel’s Lone Pine Capital, as we track hedge funds’ quarterly 13F filings as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). Here are the five largest holdings in Mandel’s portfolio as of the end of March which at least one insider has bought in the last three months (or see the full list of stocks Lone Pine reported owning):

Insiders have been buying shares of Dollar General Corp. (NYSE:DG), and the discount retailer was the fund’s third largest holding overall by market value per its 13F. Dollar General Corp. (NYSE:DG) trades at 18 times trailing earnings, even though recent quarterly results have suggested that the dollar store’s growth rates are slowing. While its low beta (of 0.2) does deserve mention, the valuation is high enough that the company is dependent on further EPS growth and we’d consider it a fairly speculative stock. Tiger Global Management initiated a position of 5.3 million shares in Dollar General Corp. (NYSE:DG) between January and March (research more stocks Tiger Global was buying).

We recorded a Board member buying over 3,500 shares of Mead Johnson Nutrition CO (NYSE:MJN), the manufacturer of infant’s and children’s nutrition products including baby formula, at the end of April; Mandel and his team owned over 7 million shares. Mead Johnson is another stock priced for high growth, at over 20 times consensus earnings forecasts for 2014; while recent growth rates have been low, bulls are hoping that rumors of a relaxation in China’s one-child policy prove true. Renaissance Technologies, founded by billionaire Jim Simons, had 1.9 million shares in its own portfolio (check out Renaissance’s stock picks).