We maintain a database of insider trading activity in order to track insider purchases. In theory, insiders should be very reluctant to purchase additional shares of their company and therefore increase company-specific risk; they should instead prefer to diversify their wealth unless they are particularly confident that the stock offers high expected returns. So observing an insider purchase should serve as a signal of that level of confidence, and in fact stocks bought by insiders narrowly outperform the market (read our analysis of studies on insider trading). Investors can therefore treat insider purchases similarly to a stock screen, doing research on any companies which our database identifies which seem like good values. Here are five stocks which insiders have bought recently:
Two Board members have bought shares of Tyson Foods, Inc. (NYSE:TSN), the provider of poultry products. The company’s earnings have been down so far this fiscal year, though Wall Street analysts expect the company to recover and as a result the forward P/E is 10. In addition to insider trading we also track quarterly 13F filings from hedge funds and other notable investors, using the included information to develop investing strategies (for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). According to our database, Cliff Asness’s AQR Capital Management owned 4.3 million shares of Tyson Foods, Inc. (NYSE:TSN) at the beginning of this year (see Asness’s stock picks).
Our database has also recorded an insider purchase by a member of Murphy Oil Corporation (NYSE:MUR)’s Board of Directors. At a market capitalization of over $12 billion, the oil and gas refining and marketing company trades at 12 times its trailing earnings (downstream oil and gas companies are generally carrying low multiples in the current market environment). Earnings were up in Murphy Oil Corporation (NYSE:MUR)’s most recent quarter compared to the same period in the previous year, but revenue actually fell 4%. Still, the stock is cheap enough to be worth further research in our view.
An insider at Boston Scientific Corporation (NYSE:BSX) bought 30,000 shares of stock on May 6th at an average price of $7.76 per share. Boston Scientific Corporation (NYSE:BSX) provides medical devices with a particular focus on cardiac health devices. Adjusted earnings numbers have not been very good the past few quarters, with the sell-side expecting little change on that front over the next couple of years. This places the stock at a valuation of about 20 times forward earnings estimates. At that pricing, given the fairly stable performance recently, we would avoid the stock.
Calgon Carbon Corporation (NYSE:CCC) has also had one of its Board members buy shares with the filing showing a purchase of 9,000 shares in mid May. Activist hedge fund Starboard Value has taken a large position in Calgon, and while its plan is not clear the fund did nominate two independent directors to the Board following an agreement with company management. Calgon has also been a weak performer in recent quarters, with high earnings multiples and flat revenue last quarter compared to the first quarter of 2012; 12% of the float is held short.
Finally, a Form 4 filed with the SEC reported an insider purchase at E TRADE Financial Corporation (NASDAQ:ETFC). The online broker is unprofitable on a trailing basis after some big earnings misses towards the end of 2012, and while it did break into the black in Q1 net income was still down 44% versus a year earlier. The forward P/E is 19, suggesting that investors have somewhat high expectations for eTrade. We’d note that the stock is very sensitive to movements in broader market indices, with a beta of 2.3.
E TRADE Financial Corporation (NASDAQ:ETFC) and Boston Scientific Corporation (NYSE:BSX) both seem to be a bit pricy at this time given how their businesses have been doing. Tyson Foods, Inc. (NYSE:TSN) has also been struggling, but if the company can hit analyst targets it will start to look more appealing and so it could be of interest if the next quarter or two show some good numbers. There is some potential for activist improvement at Calgon, but it’s probably better to wait and see if Starboard has any actual plans or if it merely wanted more independent oversight of the Board. As for Murphy Oil Corporation (NYSE:MUR), we’d want to compare it to peers in refining and marketing first but the industry certainly seems like it has good value prospects.
Disclosure: I own no shares of any stocks mentioned in this article.
