Studies show that stocks bought by insiders tend to narrowly outperform broader market indices (read our analysis of studies on insider trading). We think that this is because insiders are already exposed to company-specific risks, and so buying more shares rather than diversifying their wealth should be irrational according to economic theory unless they have stronger than normal expectations that the stock will do well. Investors cannot imitate every insider purchase, and the overall effect is small in any case, but we think that insider purchases can work similarly to a stock screen: briefly review each name and decide whether or not it is worthy of further research. Here are five stocks that insiders have bought recently:
David Yost, who sits on the Board of Directors at Bank of America Corp (NYSE:BAC) purchased 20,000 shares on April 18th at an average price of $11.51 per share. Bank of America Corp (NYSE:BAC) had been one of the most popular financial stocks among hedge funds in the fourth quarter of 2012 (here are more financial stocks hedge funds loved). Part of the reason for this, we’d imagine, is that the stock carries a significant discount to the book value of its equity with a P/B ratio of 0.6. Wall Street analyst consensus for 2014 implies a forward P/E of 9; this does assume a lot of improvement from current conditions, though revenue and earnings have been up.
The spouse of JPMorgan Chase & Co. (NYSE:JPM) Board member James Crown, as well as what appear to be institutional investors of the Crown family’s funds, bought shares of that bank. Taken with the buy at Bank of America, this may signal internal confidence in megabanks generally. JPMorgan Chase & Co. (NYSE:JPM) stands out among its peers for trading at a discount to book (though a small one) and cheaply in earnings terms as well with a trailing P/E of 9. We would be interested in taking a closer look at the company. Billionaire Ken Fisher’s Fisher Asset Management reported a position of almost 12 million shares at the end of December (find Fisher’s favorite stocks).