We divide our time between tracking filings from hedge funds and other notable investors, which we use to develop investment strategies (for example, we have found that the most popular small cap stocks among hedge funds, as determined by analyzing 13F filings, generate an excess return of 18 percentage points per year), and following insider trading activity. While insider selling is not particularly informative since insiders have an incentive to diversify away from company-specific risks, purchases by insiders should at least in theory suggest confidence in the company’s prospects. In fact, studies do show that stocks bought by insiders narrowly outperform the market (read our analysis of studies on insider trading) and so we think that it can be worthwhile to review recent insider purchases to see of any of these stocks seem like good values. Here are five stocks that insiders have bought recently:
An Exxon Mobil Corporation (NYSE:XOM) vice president’s family trust purchased 11,000 shares of the supermajor’s stock at an average price of $89 per share. Exxon Mobil was one of the most popular energy stocks among hedge funds in the fourth quarter of 2012, according to our analysis of 13F filings (find more energy stocks hedge funds loved). Earnings per share at Exxon Mobil increased by 15% in 2012 compared to the previous year, despite poor conditions in the natural gas market, though earnings growth was slower in Q4. The stock trades at 11 times forward earnings estimates, which generally in line with its peers.
Macy’s, Inc. (NYSE:M) had an executive vice president buy just over 7,100 shares of stock on March 14th for about $42.20 per share. The business is about stagnant, which is an improvement over other department stores such as J.C. Penney Company, Inc. (NYSE:JCP). The trailing earnings multiple of 13 seems about right for that level of performance, though Wall Street analysts are optimistic: their consensus for earnings growth implies a forward P/E of 9. Lee Ainslie’s Maverick Capital increased its holdings of Macy’s by 33% in the fourth quarter of 2012, to a total of 7.5 million shares (see Ainslie’s stock picks).
Find three more stocks insiders have been buying:
A Form 4 filed with the SEC disclosed that multiple insiders have purchased shares of Cincinnati Bell Inc. (NYSE:CBB) within the last week or two. Multiple insiders buying a stock has been found to be a somewhat stronger predictor of outperformance, though of course not 100% reliable. Learn more about consensus insider purchases. The telecommunications company has a market capitalization of about $680 million, though over 5 million shares are traded per day and so there is plenty of volume. We would note that the forward earnings multiple is a bit high at 21, and short interest is high as well.
The CEO and President of GrafTech International Ltd (NYSE:GTI), a $1.1 billion market cap industrial materials company specializing in graphite and other carbon products, has been buying the company’s stock at prices around $7.30 per share. The stock is down 37% in the last year and earnings have been poor as well; even after the decline, the most recent data shows that 19% of the outstanding shares are held short. Chuck Royce’s Royce & Associates was a major shareholder in GrafTech at the end of December, reporting a position of almost 19 million shares.
Skullcandy Inc (NASDAQ:SKUL), another small cap stock though also one with sufficient dollar volume for most investors (on average about 900,000 shares are traded per day and the current market price is over $5.50), had a company officer buy 15,000 shares on March 14th. The electronic peripherals company (best known for its headphones) is another stock which has plunged in the last year (down 62%) and is a short target with almost 30% of outstanding shares held short. Earnings were down slightly last quarter compared to the fourth quarter of 2011 despite a rise in revenue, and with further expected declines it trades at 14 times consensus earnings for 2014.
Disclosure: I own no shares of any stocks mentioned in this article.