By Matt Doiron
Stocks bought by company insiders tend to narrowly outperform the S&P 500 (learn more about studies on insider trading). We think that this is because insider purchases should generally be rare; after all, the insiders are already benefiting from any upside at the company and putting more of their wealth into the stock reduces their diversification in the case of a negative company-specific or industry-specific event. The exception would come when the insider is very confident that the stock price will rise, and so the purchases we record should disproportionately take place when the company has good prospects. Here are five stocks that insiders have bought recently:
Timothy Flynn, who serves on the Board of Directors at JPMorgan Chase & Co. (JPM), bought about 6,800 shares of the stock at an average price of $46.93 per share. JPMorgan Chase joined many of its peer megabanks on our list of the most popular stocks among hedge funds for the third quarter of 2012 (see the full top ten list). The stock has risen in value recently but it still carries a small discount from the book value of its equity at a P/B ratio of 0.9, and also looks cheap in terms of earnings at a trailing P/E of 9. Revenue was up by almost 20% in its most recent quarter compared with the same period in 2011, and earnings were up strongly as well. We think that it might still be a value play.
The Chief Marketing Officer at Informatica Corporation (INFA), Margaret Breya, invested over $100,000 in the $3.9 billion market cap business software company on January 29. In the fourth quarter of 2012, lower margins caused net income to fall 27%, but this beat market expectations driving the stock price up on the day (Informatica also reported an increase in revenue). The stock trades at 43 times trailing earnings, but the sell-side expects the company to rebound with improved performance on the bottom line over the next two years. Still, the forward P/E is 22 and as a result we don't think that Informatica would be a good value even if its earnings were constant rather than apparently shrinking.
GATX Corporation (GMT), a $2.3 billion market cap lessor of railcars and other transportation assets, had two of its Board members report buying shares towards the end of January at prices of $47 per share or lower. Purchases by multiple insiders within a short period of time, it turns out, are particularly bullish signals. Last quarter revenue and earnings were down slightly versus a year earlier, though some market watchers are bullish on rail's prospects as a cheap bulk freight transportation option. The stock carries trailing and forward P/E multiples of 17 and 13, respectively, showing that the sell-side also expects earnings growth. We would watch the company due to the insider activity, but it doesn't seem to be a particularly good value right now.
A Board member at Xcel Energy Inc (XEL) purchased 4,000 shares of the stock on February 1st. Xcel is an electric and natural gas utility; as might be expected from that sector of the economy it has little dependence on broader macro activity and so the stock's beta is only 0.2. The company also pays a dividend yield close to 4%, though we noticed when we looked at its peer group that this is actually a slightly lower yield than could be found at some of its peers.
Gabriel Cerrone, the Chairman of the Board at Synergy Pharmaceuticals Inc (SGYP), acquired a little over 13,000 shares of the development stage pharmaceutical company through his Panetta Partners. Synergy's market capitalization is only about $410 million, but on average about 550,000 shares are traded per day and the current stock price is over $6 making for over $3 million in daily dollar volume. Its primary product is designed to treat gastrointestinal disorders. While Synergy is not expected to earn profits in 2013, the stock is up 45% in the last year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.