Studies show that stocks bought by insiders tend to beat the market, though the effect is generally very small. The best results come from consensus insider purchases. According to academic studies stocks bought by multiple insiders outperformed the market by 7 percentage points per year on the average over a 25 year period (learn more about studies on consensus insider purchases). We think that these results are the way they are because insiders have to be particularly confident in a stock’s prospects in order to ignore the benefits of diversification and invest more of their own money in the company. As such we think insider purchases can be treated like other stock screens: take a quick look at the company and decide whether or not it is worthy of further research. Here are five stocks that at least three insiders have bought in the last 30 days:
Several insiders bought shares in Denbury Resources Inc. (NYSE:DNR), a $7.2 billion oil and gas exploration and production company. In the third quarter of 2012, Denbury’s revenue was up slightly versus a year earlier but earnings were down, likely reflecting the combination of lower natural gas prices and increased production. The stock trades at 16 times earnings, whether we use trailing results or analyst forecasts for 2013. Billionaire George Soros initiated a position in Denbury during the third quarter of 2012 (see Soros’s stock picks) and billionaire Leon Cooperman’s Omega Advisors also increased its holdings of the stock (check out more stocks Cooperman was buying).
Since the beginning of 2013 four different insiders have been buying Abraxas Petroleum Corp. (NASDAQ:AXAS), another oil and gas exploration and production company. Abraxas has a market capitalization of only about $200 million, but on average about 800,000 shares are traded per day and the current market price is about $2.10 making for over $1.5 million in daily dollar volume. When the fourth quarter comes in Abraxas is expected to be barely profitable for 2012, but the sell-side expects the company to do much better this year and so the current-year P/E is 18. 12% of the outstanding shares are held short.