According to economic theory, company insiders should avoid buying stock and in fact should generally tend towards selling shares (and diversifying their wealth) unless they are confident in the company’s prospects. Insider purchases should therefore signal this confidence, and in fact studies generally show a small outperformance effect for stocks bought by insiders (read our analysis of studies on insider trading). We track insider purchases and like to take a brief look at those where the purchase is large enough to be significant to see if the company might be a good buy. Read on for our quick take on five high yield stocks which at least one insider has bought recently:
An AT&T Inc. (NYSE:T) Board member’s trust bought 9,000 shares of the company’s stock in late July. At current prices and dividend levels, AT&T Inc. (NYSE:T) pays an annual yield of 5%; in addition, the telecom giant is quite defensive with a beta of only 0.2. The company’s financials are stable as well, with growth in wireless being canceled out by a decline in the wireline segment resulting in total revenue and earnings only changing by 1-2% compared to a year ago.
We also track hedge fund activity, including through quarterly 13F filings; our research shows that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (learn more about our small cap strategy), and our own small cap portfolio based on hedge funds’ top picks has seen an excess return of 33% in the last 11 months. According to our database, billionaire Ken Fisher’s Fisher Asset Management owned a little over 7 million shares of AT&T Inc. (NYSE:T) at the end of March (find Fisher’s favorite stocks).
Another large company where an insider has been indirectly buying is commodities producer Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). With the stock down 13% in the last year against a market which has returned over 20%, the current dividend yield is now 4.3%. One contributing factor to the stock’s decline has been market disapproval over the company’s recent acquisition of two oil and gas companies; in addition to normal integration risk, it’s possible that this diversification could weaken management’s focus. Paulson & Co., managed by billionaire John Paulson, reported a position of 9 million shares at the end of Q1 (see Paulson’s stock picks).
One of the members of Philip Morris International Inc. (NYSE:PM)’s Board of Directors bought 1,000 shares of stock on July 23rd at prices around $89 per share.