We track both insider purchases and insider sales in our insider trading database, but we pay particular attention when we catch insiders buying. This is because the principles of diversification mean that it is rational for insiders to sell even if they aren’t particularly negative on the company (of course, if they are negative, that just makes it more sensible to sell). It seems to us that for an insider to buy additional shares, on the other hand, has to signify at least some confidence that the stock will rise in order to offset the benefits of diversification. Studies show that stocks bought by insiders do beat the market on average (read more about studies on insider trading). Here are five stocks that insiders have bought recently:
A Board member at John Wiley & Sons Inc (NYSE:JW.A) bought 12,000 shares of stock at an average price of $37.15 per share. The publishing business isn’t doing well right now- Wiley, in fact, had its revenue and earnings decline in its most recent quarter compared to the same period in the previous fiscal year- but the stock is somewhat low priced at 12 times trailing earnings. It’s possible that it would be a good value if the company’s operations improved, but we didn’t find it that attractive. See more of our thoughts on Wiley.
Harry Wilson, a Board member at Visteon Corporation (NYSE:VC), joined another insider in buying the company’s stock in the month of December. Consensus insider purchases are particularly bullish signs. Visteon is a $2.7 billion market cap auto parts company providing climate and electronics components among others. As an auto related company its stock is sensitive to the broader market (beta of 2.4) and business has been down recently (revenue and earnings declined at double-digit rates in the third quarter compared to the same period in 2011). Wall Street analysts think the company will recover and it trades at 14 times consensus earnings for next year, but we think there are probably better auto investments. SAC Capital Advisors, managed by billionaire Steve Cohen, bought shares last quarter (find more of Cohen’s stock picks).
Two Board members at recent IPO SolarCity Corp (NASDAQ:SCTY), including billionaire Elon Musk, bought significant amounts of stock at the IPO price of $8 per share. SolarCity had planned a higher IPO price, in the $13-15 range, but poor sentiment towards solar (the company installs and leases solar panels to residential, business, and government customers) forced the company to lower its price. The stock currently trades at about $10.50. While SolarCity’s revenue is growing quite rapidly, it remains unprofitable and so we wouldn’t recommend it at this point.
SEI Investments Company (NASDAQ:SEIC) had an Executive Vice President buy 5,000 shares at an average price of $22.56 per share. SEI is a wealth management and investment advisory company; we had noted in our discussion that it was valued at quite a bit of a premium to larger peers The Bank of New York Mellon Corporation (NYSE:BK) and State Street Corporation (NYSE:STT). While earnings have been up, the increase hasn’t been particularly large. We also noted that the same insider had sold a larger number of shares in early November, so it’s possible that the more recent move isn’t as meaningful as it otherwise would be. Chuck Royce’s Royce & Associates owned 5.1 million shares at the end of the third quarter (see Royce’s favorite stocks).
$360 million market cap scientific instruments company Fludigm Corporation (NASDAQ:FLDM) had a Board member buy 10,000 shares at an average price of $14.36 per share. About 200,000 shares are traded daily on average, so there should be sufficient volume for most investors. The sell-side expects Fludigm to be unprofitable both this year and next year, and 10% of the outstanding shares are held short. We would avoid it.
