By Matt Doiron
We like to track insider trading activity, and insider purchases in particular. Theory tells us that insiders should prefer to diversify their wealth rather than buying additional shares in their company, and studies show that on average stocks bought by insiders tend to outperform the market. Here are five stocks that insiders have purchased recently:
During the month of November multiple insiders bought shares of $2.1 billion market cap coal producer Alliance Resource Partners (ARLP); consensus insider buying is a particularly bullish signal on average. The past year has been rough on coal companies- thermal coal producers have seen utilities switch to natural gas while the demand for metallurgical coal has been lower due to reduced steel production. Alliance's stock, for example, is down 23% in the last year. Increased coal production has helped boost the company's revenue, but since costs have also been up the company reported a 59% decline in earnings last quarter versus a year earlier. With billionaires like George Soros buying other coal stocks it's possible that the industry is poised for a turnaround, though we'd hesitate to buy at the moment (see George Soros' stock picks).
A member of Juniper Networks (JNPR)'s Board of Directors bought 16,700 shares in late November at an average price of $18 per share. A failure to limit cost growth has reduced Juniper's earnings significantly despite rising revenue, and it now trades at 51 times trailing earnings. The company is expected to improve in 2013, and so the forward P/E is only 16. However, when we'd looked at the stock (see our analysis of Juniper Networks), we'd concluded that Cisco Systems (CSCO) is still a better buy as that company's business is already performing well and the stock trades at fairly low P/E multiples.
The CFO of Home Loan Servicing Solutions Ltd (HLSS), a $580 million market cap mortgage investment company, bought 3,500 shares at an average price of $19.10. The mortgage business seems to be doing well- we'd recently noted an insider purchase at peer Altisource Portfolio Solutions S.A. (ASPS), another company in the mortgage investment industry. Home Loan Servicing Solutions- which was only founded in 2010- is valued at only 14 times its trailing earnings, so even limited growth would make it a good value. Billionaire Israel Englander's Millennium Management increased its stake in the company last quarter to a total of 1.1 million shares (check out more of Englander's stock picks). It might be a good stock to watch for now as it builds up more of an operating history.
Tilly's Inc (TLYS), an apparel retailer for brands and products targeted at teenagers and young adults, had one of its Board members buy 5,000 shares at the end of November at an average price of $13.32. Tilly's carries a trailing P/E multiple of 25, but trades at only 14 times forward earnings estimates as Wall Street analysts predict strong growth. That forward P/E is about even with where Abercrombie & Fitch Co. (ANF) trades, even though that company has a much larger market cap and has been seeing strong earnings growth in recent quarters while Tilly's had its net income fall 24% last quarter compared to the third quarter of 2011. We'd avoid it.
John Edmunds, who serves as CFO of Inphi Corporation (IPHI), bought 10,000 shares of the stock on November 30th at an average price of $7.80 per share. Inphi is a provider of semiconductors; while the company has been struggling with profitability, its revenue was up 50% in its most recent quarter compared to the same period in the previous year. Its forward P/E multiple is 37, though that is a bit deceptive as much of the company's market cap consists of its cash holdings. It might have good future prospects but for now we don't think that it's a good buy.