While insider sales can sometimes indicate trouble at a company, it’s just as possible that insiders are (smartly) diversifying their wealth away from the same business which drives their income. Insider purchases are a different story- there’s no rational reason to participate in that side of insider trading unless the insider is confident that the stock will go up. Studies have shown that stocks bought by insiders outperform the market, at least on average, and that’s why we keep a close eye on insider purchases. Here are five stocks that have been bought by insiders recently:
The COO of Hewlett-Packard Company (NYSE:HPQ), Bill Veghte, bought about 23,000 shares for his trust at an average price just below $13 per share. HP’s stock price has been cut in half over the last year as the company has so far been unable to transition towards a better mix of hardware, software, and services. Dell Inc. (NASDAQ:DELL) is down by about a third over the same period, as that company has also struggled, while International Business Machines Corp. (NYSE:IBM)’s stock price and earnings are about flat. HP’s revenue dropped 7% in its most recent quarter compared to the same period in the previous year, and we’re still not sure that it’s a buy particularly compared to the more successful IBM. Read more about Veghte’s purchase and about HP.
AK Steel Holding Corporation (NYSE:AKS) Board member Richard Abdoo bought 12,500 shares in the $450 million market cap steel company (which has plenty of daily dollar volume). The company had an operating loss in its most recent quarter, as lower prices dragged down revenue while having little effect on costs. Wall Street analysts expect AK Steel to improve in 2013 and become profitable, and apparently the market is even more optimistic as the forward P/E is a fairly high 25. Cliff Asness’s AQR Capital Management added shares of AK Steel during the third quarter (check out more of Cliff Asness’s stock picks). With over 30% of the outstanding shares held short, we think that even investors who are bullish on a turnaround in steel should avoid the stock in favor of peers such as Nucor Corporation (NYSE:NUE) or Steel Dynamics, Inc. (NASDAQ:STLD).