Insider trading activity has been heating up a bit as earnings season winds down. While insiders sell shares for a number of reasons, we like to pay attention to insider purchases because these can be taken to signify an insider’s confidence in the company; if the insider was not particularly optimistic, it would make more sense for them to diversify their wealth. Studies generally show a small outperformance effect for stocks bought by insiders (read our analysis of studies on insider trading) and we think that it can be a good idea to screen these stocks for any interesting names. Read on for our thoughts on five stocks insiders have bought recently.
A Board member at Marathon Petroleum Corp (NYSE:MPC) purchased 6,300 shares of stock through a revocable trust in his name at an average price of $71.37 per share. Marathon Petroleum Corp (NYSE:MPC), which was spun out from Marathon Oil Corporation (NYSE:MRO) as a pure play oil and gas refining and marketing business, experienced a decline in operating income last quarter compared to the second quarter of 2012 on higher costs. Like many other downstream oil and gas companies, Marathon Petroleum Corp (NYSE:MPC) features low earnings multiples- for example, the forward P/E is only 8.
In addition to insider trading activity, we track quarterly 13F filings from hundreds of hedge funds and other notable investors. We’ve found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy) and in fact our own portfolio based on this strategy has beaten the S&P 500 by 33 percentage points in the last 11 months. Our database of hedge fund filings also comes in handy for tracking hedge fund activity in individual stocks over time, and we can see that billionaire Andreas Halvorsen’s Viking Global initiated a position of 2.8 million shares in Marathon during Q1 2013 (see Halvorsen’s stock picks).
A company officer at Education Realty Trust, Inc. (NYSE:EDR), a $1.1 billion market cap real estate investment trust which invests in and manages student housing communities, bought over 10,000 shares in early August. Because real estate investment trusts receive favorable tax treatment conditional on distributing a large share of taxable income to shareholders, they often pay high dividend yields. Education Realty is in fact able to manage an annual yield of 4.8%, and thanks to the consistent demand for student housing over time the stock’s beta is 0.4.