According to Insider Monkey’s analysis of studies on the subject, stocks bought by insiders tend to slightly outperform the market on average. While it’s impossible for investors to imitate each one of the hundreds to thousands of insider purchases which take place each year, we think that reviewing insider purchases can work similarly to a stock screen in providing a list of names which investors can research further if they find any of these stocks interesting following an initial review. Read on for our quick take on three stocks which insiders have bought recently:
A Board member at eBay Inc (NASDAQ:EBAY) bought 5,000 shares of stock at an average price of $51.61 per share. eBay Inc (NASDAQ:EBAY) consists of two business units: the better known marketplace segment, and the payments segment which includes Paypal. Payments is growing faster in terms of revenue, but is also a lower-margin business at least on the segment level. As a result, while eBay Inc (NASDAQ:EBAY) grew its sales by 14% in the second quarter of 2013 versus a year earlier, the fact that its business mix is shifting slightly towards payments resulted in a somewhat smaller growth rate in terms of operating income.
At a trailing P/E of 25, markets are already excited about eBay Inc (NASDAQ:EBAY)’s future prospects. Next year the company is expected to earn $3.19 per share, which would be a substantial percentage increase from its current run rate and is 18% higher than consensus forecasts for 2013. While investors should expect high revenue growth from the company, it’s been shown that net margins may shrink somewhat and limit the effect on the bottom line. At only moderate earnings growth the stock would be a bit pricy at the current valuation.
Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds in addition to following insider activity; we’ve found that the included information can be useful in developing investment strategies (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). According to our database, billionaire Stephen Mandel’s Lone Pine Capital owned 9.7 million shares of eBay Inc (NASDAQ:EBAY) at the end of March (find Mandel’s favorite stocks).
Industrial products and climate control systems company Ingersoll-Rand PLC (NYSE:IR) also had an insider buy shares recently. Sales have been essentially unchanged so far this year compared to the first six months of 2012, with a small amount of revenue growth in Q2 offsetting a small decline earlier in the year. Pretax income is down slightly. The stock trades at 19 times trailing earnings; at that valuation, even with the company buying back shares as aggressively as it has been, investors should be looking for growth in profits in order for Ingersoll-Rand PLC (NYSE:IR) to be a good value. Even with the insider purchase it seems best to avoid the stock.