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.
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 (see Paulson’s stock picks).
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 (research more stocks Thaler liked).