Studies show that stocks bought by insiders outperform the market, with a somewhat stronger effect for stocks bought by multiple insiders (read our analysis of studies on consensus insider purchases). We think that this is because insiders already have an economic connection to the company, and so buying shares of the stock reduces their diversification; therefore, they will generally not buy unless they have a good deal of confidence in the company’s prospects. Even so, we think it’s best to treat insider purchases similarly to a stock screen- using stocks bought by insiders as initial ideas and then doing further research on any companies which seem to be good values. Here are five stocks which our database shows have been bought by multiple insiders in the last month:
Towards the end of April, two insiders at Capital One Financial Corp. (NYSE:COF) bought the stock at prices of about $57 per share. Capital One Financial Corp. (NYSE:COF) actually looks somewhat interesting to us: the stock is valued at a discount to the book value of its equity, with a P/B ratio of 0.8, and at fairly decent earnings multiples as well (although the same is the case for some other large financials). As such we’d be interested in learning more about the company. Billionaire Andreas Halvorsen’s Viking Global reported a position of almost 14 million shares in Capital One Financial Corp. (NYSE:COF) at the end of December (see Halvorsen’s stock picks).
Two members of United States Steel Corporation (NYSE:X)’s Board of Directors were buying the stock in early May. It’s been a tough couple of years for steel in general (as demand is tied to the global economy) and for United States Steel Corporation (NYSE:X) in particular with the stock down 25% in the last year. 30% of the float is held short as many market players remain bearish; the stock is currently valued at a high multiple on trailing earnings, and revenue has been down. While Wall Street analysts are actually somewhat bullish, with their forecasts for 2014 implying a forward P/E of only 11, we think it’s best to wait for better results from the company.