One implication of the principle of diversification is that company insiders- who, in a way, are already “invested” in the company as it is a source of income for them- should avoid buying stock unless they are particularly confident that the share price will rise. Our analysis of studies on insider trading shows that stocks bought by insiders slightly outperform broader market indices. While retail investors can’t imitate every insider purchase, we think that they can treat these buys similarly to a stock screen, performing further research on any interesting companies. Read on for our quick take on five stocks that insiders have bought recently.
A Board member purchased 10,000 shares of Hess Corp. (NYSE:HES), an oil and gas company planning to sell or spin out its midstream and downstream assets, on June 21st. Hess Corp. (NYSE:HES)’s revenue and pretax income have been up, and so its forward earnings multiple of 11 places it in value territory. However, we’d note that this forward P/E is similar to those of larger oil and gas companies. In addition to insider purchases, we maintain a database of quarterly 13F filings from hundreds of hedge funds and other notable investors. We use this information to help us develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year) and can also see how fund managers are trading individual stocks. Billionaire Paul Singer’s Elliott Management had been agitating Hess Corp. (NYSE:HES)’s management to sell off its non-core assets for some time; we can see that the fund had over $1 billion invested in the stock at the end of March (see Singer’s stock picks).
