Studies show that stocks bought by insiders narrowly outperform the market (read our analysis of studies on insider trading) with our explanation for this finding being that company insiders have to be more confident than usual to buy the stock rather than diversify their wealth. Because the effect is not enormously large, as well as because of the fact that there are too many insider purchases for an investor to imitate them all, we think it’s best to treat insider purchases similarly to a stock screen: a good way to identify interesting names for further research. Here are five stocks which insiders have bought recently:
An insider at Boston Scientific Corporation (NYSE:BSX), an $11 billion market cap medical device company, directly acquired 30,000 shares of stock on May 6th. At its current valuation Boston Scientific trades at 18 times forward earnings estimates; revenue fell 6% last quarter compared to the fourth quarter of 2012. We track quarterly 13F filings from hedge funds and other notable investors as part of our work researching investing 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 use our database to see that billionaire Leon Cooperman’s Omega Advisors owned about 15 million shares of Boston Scientific Corporation (NYSE:BSX) at the end of December (see Cooperman’s stock picks).
A Board member at United States Steel Corporation (NYSE:X) disclosed a purchase of nearly 13,000 shares at an average price of $18.50 per share. Demand for steel has been low in the past couple years, and United States Steel Corporation (NYSE:X)’s earnings and stock price have suffered accordingly- in fact, it was unprofitable in the first quarter of 2013. We had noted in an earlier insider summary that there had been quite a bit of insider purchasing activity at Walter Energy, which is also tied to steel through its production of metallurgical coal. While we would not call the steel industry a value play at this time, it’s interesting that insiders at multiple companies related to the industry are bullish.
One of the members of BB&T Corporation (NYSE:BBT)’s Board of Directors roughly doubled her IRA’s holdings of the stock by purchasing over 3,800 shares of the $22 billion market cap bank. BB&T Corporation (NYSE:BBT) pays a dividend yield of 3% at current prices and dividend levels. The stock’s earnings multiples are also somewhat low, with trailing and forward P/Es of 13 and 10 respectively, though that isn’t out of the ordinary for bank stocks in the current market environment. We’d note that earnings came in over 40% lower in Q1 2013 versus a year earlier.
IBERIABANK Corporation (NASDAQ:IBKC) saw one of its own Board members purchase 10,000 shares of the stock. The regional bank, which operates in parts of the southern United States (based primarily in Arkansas and Louisiana), is currently valued at a small discount to the book value of its equity with a P/B ratio of 0.9. It hasn’t done quite as well on the earnings front recently, and as a result its trailing P/E is more than 20, but the sell-side expects the business to improve over the next couple of years.
The CEO of Whitestone REIT (NYSE:WSR) purchased over 6,200 shares on May 8th at an average price of $16.49. While Whitestone REIT (NYSE:WSR)’s market cap is less than $200 million, over 80,000 shares are trade per day making for over $1 million in daily dollar volume. Real estate investment trusts receive favorable tax treatment conditional on distributing a large share of taxable income to shareholders. As a result, REITs often pay high yields; Whitestone REIT (NYSE:WSR)’s is almost 7% at current prices. The company focuses on retail and office properties in the urban Sunbelt.
There’s certainly some risk to Whitestone’s business, and income investors should be sure not to have too much of their capital in REITs, but the stock does look like it might be worth further research on the basis of its dividend. Each of the two banks has something of a value case, but we’d still avoid them as BB&T Corporation (NYSE:BBT)’s business hasn’t been looking that great and IBERIABANK Corporation (NASDAQ:IBKC) is not as cheap as many other banks from an earnings perspective. The other two stocks we’ve tracked here don’t seem to be great values, although as we’ve noted we are curious about the level of insider interest in steel and met coal.
Disclosure: I own no shares of any stocks mentioned in this article.