While some stocks such as Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB) have rallied recently as their results have impressed the market, other industries such as basic materials and even homebuilders (which are generally down so far this year after an excellent 2012) have done less well. In our coverage of insider trading activity, we’ve noticed a number of recent insider purchases at stocks in certain out of favor industries.
Studies show that stocks bought by insiders slightly outperform the S&P 500 on average (read our analysis of studies on insider trading). We think that this is because insiders would normally prefer to diversify their wealth; when they instead choose to increase their company-specific risk by buying more shares, chances are that this should be because they are particularly confident in the stock. Because of the small level of outperformance, investors can treat insider purchases similarly to a stock screen and perform further research on any names which seem interesting after a brief look at the company. Read on for our quick take on four stocks that insiders have reported buying recently.
Two limited partnerships connected to a member of the Board of Directors at Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), a natural resources company which also produces oil and gas following two recent acquisitions, purchased over 500,000 shares of the company’s stock. With copper and gold prices not doing that well year to date, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s earnings fell over 30% in the second quarter of 2013 versus a year earlier. Between poor market conditions and poor investor sentiment regarding the company’s acquisitions, the stock is down 16% year to date against a rising market. This has brought its valuation down to trailing and forward earnings multiples of 10 and 9, respectively, though of course future profits are dependent on commodity prices and on integrating its recent acquisitions. George Soros and Leon Cooperman are among FCX investors.
In addition to insider trading activity, Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds and other notable investors as part of our work researching investment strategies (for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). According to our database, billionaire John Paulson’s Paulson & Co. owned 9 million shares of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) as of the end of March.
Royal Caribbean Cruises Ltd. (NYSE:RCL) is another stock seeing insider buying with family trusts related to the CEO buying about 27,000 shares of the cruise line. Last quarter revenue was up slightly compared to the second quarter of 2012 but operating margins widened as well resulting in operating income growth of 17%. Bulls hope that this indicates that the cruise liner will have a strong Q3 (the source of most of the company’s annual earnings). Analyst consensus implies a current-year P/E of 16. John Thaler’s JAT Capital Management was buying Royal Caribbean Cruises Ltd. (NYSE:RCL) during the first quarter of 2013.
Homebuilder PulteGroup, Inc. (NYSE:PHM) has had multiple insiders buy shares; these consensus insider purchases are often considered particularly bullish signals. After a sharp rise in 2012, markets have been less optimistic about homebuilders so far this year and perhaps these insiders believe the company is now being underrated by market prices. PulteGroup, Inc. (NYSE:PHM) is valued at 22 times trailing earnings, but adjusted pretax income has nearly doubled from its levels a year ago off of 20% revenue growth. Wall Street analysts expect earnings growth to continue, with a forward P/E of 12 and a five-year PEG ratio of 0.4. Of course strong future performance is dependent on the housing market continuing to do well.
A Board member directly purchased 10,000 shares of Select Comfort Corp. (NASDAQ:SCSS), the mattress company which provides Sleep Number beds, in late July. Following the acquisition of Sealy by Tempur-Pedic to form Tempur Sealy International Inc (NYSE:TPX), some analysts believe that this consolidation in the mattress industry will result in more pricing power. Revenue at Select Comfort Corp. (NASDAQ:SCSS) has been flat according to recent reports, and with marketing expenses among others up this has resulted in lower earnings. The sell-side expects the company to recover, and so the forward P/E is 14. Renaissance Technologies, founded by billionaire Jim Simons, had a small position in Select Comfort Corp. (NASDAQ:SCSS) at the beginning of April (find Renaissance’s favorite stocks).
Disclosure: I own no shares of any stocks mentioned in this article.