Economic theory, through the principle of diversification, suggests that it is irrational for company insiders to buy shares of the company and therefore increase their company-specific risk unless they are particularly confident in the stock’s prospects. Of course, sometimes insiders are wrong (or potentially buy the stock for other reasons), but overall stocks bought by insiders narrowly outperform the market (read our analysis of studies on insider trading). This is why we track insider purchases as well as maintain our database of hedge fund filings which we use to research investing strategies (including our top small cap picks among hedge funds strategy). Read on for five stocks which insiders have been buying recently.
A member of Winnebago Industries, Inc. (NYSE:WGO)’s Board of Directors purchased 4,000 shares of stock in mid April at prices generally between $17.50 and $18 per share. Winnebago Industries, Inc. (NYSE:WGO)’s revenue grew by 35% in its most recent fiscal quarter compared to the same period in the previous fiscal year, and the company earned $6.3 million in net income as opposed to a net loss. The stock is up 93% in the last year, and currently trades at 14 times forward earnings estimates. Chuck Royce’s Royce & Associates owned 2.2 million shares of Winnebago Industries, Inc. (NYSE:WGO) at the end of December (research more stocks Royce owns).
A Form 4 filed with the SEC showed a The Wet Seal, Inc. (NASDAQ:WTSL) Board member buying a little over 60,000 shares at an average price of $3.19 per share. The women’s and girl’s apparel retailer has been reporting declining same-store sales, and actually experienced an operating loss in the last fiscal year. The sell-side is not particularly optimistic, with Wet Seal, Inc. (NASDAQ:WTSL) expected to post negative earnings per share this year as well. When we looked at the company, we didn’t think that it looked like a good buy, and that value investors might be better served by considering peers such as Jones Group (NYSE:JNY) or Ann Inc (NYSE:ANN).
One of AGCO (NYSE:AGCO)’s company officers bought close to 4,000 shares of stock on April 16th. For a couple months a company related to a Board member has been buying shares, so we now have multiple insiders buying AGCO; consensus insider purchases are stronger, though not perfect, bullish signals. As with many agriculture related companies, AGCO posts fairly low earnings multiples- the trailing and forward P/Es are 9 and 8, respectively. Revenue has been up, though in Q4 net income was down by quite a bit versus a year earlier and we’d have to look into that before considering it as a value stock.
Texas Industries (NYSE:TXI), a $1.6 billion market cap company providing cement and other construction materials, also had an insider buying the stock. Many construction related stocks have soared in the last year, and Texas Industries is actually up 68% over that time frame. Earnings multiples are very high, as analyst consensus is for 9 cents per share in earnings for the fiscal year ending in May 2014. Texas Industries has been reporting operating losses, though smaller ones than a year ago. Southeastern Asset Management, managed by Mason Hawkins, reported a position of 8.1 million shares in its 13F filing for the fourth quarter of 2012 (find Southeastern’s favorite stocks).
A trust associated with a member of AeroVironment (NASDAQ:AVAV)’s Board of Directors purchased a little over 25,000 shares of the stock between April 15th and 16th; we had previously covered purchases from this trust earlier in the month. AeroVironment’s business has been down, and with much of its revenue coming from unmanned aircraft systems for the military we would be concerned about the effects of federal spending cuts. The sell-side expects net income to decline over the next several quarters. Billionaire Ken Griffin’s Citadel Investment Group disclosed ownership of about 540,000 shares at the end of 2012 (see Griffin’s stock picks).
Disclosure: I own no shares of any stocks mentioned in this article.
