Our analysis of studies on insider trading has led us to conclude that stocks bought by insiders slightly outperform the market. Our explanation for this finding is that in order for insiders to buy their company’s stock- and, therefore, increase their own company-specific risk- they should be more confident than usual that the stock will do well. Otherwise, they would simply diversify their wealth in line with economic theory. We like to review recent insider purchases and take a brief look at each company so that investors can perform research on any interesting stocks- similar to how many people use stock screens in their decision making process. Here are five stocks which insiders have bought recently:
A member of Chesapeake Energy Corporation (NYSE:CHK)’s Board of Directors bought over 150,000 shares of stock on June 21st. The natural gas producer is valued at 10 times forward earnings estimates, although currently the company is struggling and has only low profitability due to poor conditions in the natural gas market. It might be best to hold off for now given how dependent the company is on nat gas prices. Our database shows another insider buying Chesapeake Energy Corporation (NYSE:CHK) earlier in the month; our evaluation of studies on insider trading shows that consensus insider purchases are particularly likely- though not certain- to beat the market (read more about consensus insider purchases).
A trust related to an insider at Dollar Tree, Inc. (NASDAQ:DLTR) bought 8,000 shares in late June at an average price of $49.76 per share. Dollar Tree, Inc. (NASDAQ:DLTR) is currently valued at 18 times its trailing earnings, and delivered a 15% increase in earnings in its most recent quarter compared to the same period in the previous fiscal year. Other dollar stores have not been performing as well, however, potentially signaling trouble for the industry. In addition to insider trading activity, we maintain a database of hedge fund positions culled from quarterly 13F filings. We use these filings to help us research investment strategies (for example, we have found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year) and they can also be used to track interest in individual stocks. We can see that billionaire Stephen Mandel’s Lone Pine Capital owned over 12 million shares at the end of March (see Mandel’s stock picks).
The wife of the Chairman of the Board at The J.M. Smucker Company (NYSE:SJM) acquired 1,000 shares of stock at an average price of $101.05 per share. The trailing and forward P/Es at The J.M. Smucker Company (NYSE:SJM) are 20 and 16, respectively, roughly in line with where other large food companies trade. Revenue and earnings were up in its last fiscal year (which ended in April) but the most recent quarter’s numbers showed a revenue declined compared to the previous fiscal Q4. Winton Capital Management, managed by billionaire David Harding, reported owning about 280,000 shares at the end of the first quarter of 2013 (find Harding’s favorite stocks).
Multiple insiders have been buying $3.6 billion market cap pipeline and storage company NuStar Energy L.P. (NYSE:NS). NuStar Energy L.P. (NYSE:NS) has been making quarterly dividend payments of roughly $1.10 per share for the last two years, and at current prices that makes for an annual yield of about 10%. While that’s certainly a high yield, we’d warn income investors that the company’s profitability has been low and generally coming in under expectations. Chuck Akre’s Akre Capital Management initiated a position of over 1 million shares in the first quarter of this year.
A Board member at Standard Parking Corporation (NASDAQ:STAN) directly purchased 20,000 shares of the company’s stock over a period of three trading days in late June. When we looked at Standard Parking Corporation (NASDAQ:STAN), it didn’t seem to appealing: a recent acquisition increased the size of the company, but operating income grew only 15% in Q1 2013 versus a year earlier and this increase was wiped out by higher interest expenses as well as a 40% increase in share count. The sell-side is predicting good growth numbers for the next year and a half, but the forward P/E is 19 and we think that may be being optimistic anyway.
Disclosure: I own no shares of any stocks mentioned in this article.
