According to our review of studies on insider trading, stocks bought by insiders tend to narrowly outperform the market. We think that this is because company insiders, by buying stock, are increasing their company-specific risk rather than diversifying their wealth- something that economic theory suggests should only occur when they are particularly confident in the business’s prospects. While it’s impossible to imitate every insider purchase, it can be useful for investors to treat these purchases similarly to a stock screen by briefly reviewing the companies involved and deciding if they are worthy of further research. Read on for our quick take on five stocks insiders have bought recently.
A member of the Board of Directors at Abercrombie & Fitch Co. (NYSE:ANF) was buying the stock in late June at prices of about $44 per share. The apparel retailer is valued at 16 times trailing earnings, in line with the valuations of peers such as American Eagle and Gap. While its fiscal Q1 is generally one of the less important quarters of the fiscal year, we’d still be concerned that the company’s revenue declined per its recent report with same-store sales down over 10%. In addition to insider trading activity, we track quarterly 13F filings from hundreds of hedge funds as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). We can see from our database that billionaire Steve Cohen’s SAC Capital Advisors owned 2.3 million shares of Abercrombie & Fitch Co. (NYSE:ANF) at the end of March (find Cohen’s favorite stocks).
Lennar Corporation (NYSE:LEN), the $6.8 billion market cap homebuilder, is another stock where we’ve recently recorded insider buying activity. Thanks to a strong housing market, its last fiscal quarter showed a 53% increase in revenue from its levels a year ago with pretax income more than tripling. With trailing and forward P/Es of 19 and 13, respectively, markets are pricing in some future growth but analyst expectations may be suggesting that there is some further upside in the stock. Per the most recent data 22% of the float is held short.
Thomas Rogers, CEO of TiVo Inc. (NASDAQ:TIVO) bought 10,000 shares on July 1st at an average price of $11.14 per share. This purchase came after TiVo Inc. (NASDAQ:TIVO) had a terrible June as the markets were disappointed by the small magnitude of its settlement with companies such as Google and Time Warner Cable. In terms of its fundamental business TiVo Inc. (NASDAQ:TIVO) looks like a dicey proposition: consensus analyst forecasts have the company losing money this year and then only earning 5 cents per share in the fiscal year ending in January 2015.