I have been doing my usual weekend review of Barron's top 20 insider buys & sells for the just completed week. A couple of things stuck out this week.
First, there are some huge sells by insiders at some major companies. Insiders sold over $20mm worth of shares at CVS Caremark (NYSE:CVS), Autodesk (NASDAQ:ADSK), Oracle (NASDAQ:ORCL), Monster Beverage (NASDAQ:MNST), LinkedIn Corporation (NYSE:LNKD) and Gilead Sciences (NASDAQ:GILD) in the last reported week. The selling makes sense early in the year after the huge rally in equities last year. Selling in January instead of December avoids the taxman for another year.
More surprising to me, there seems to be absolute dearth in insider buying with only two companies reporting even a $1mm in new purchases and these were made by 'beneficial owners' not directors or officers. This confirms to me the market is at least fairly valued if not overvalued.
Finally, it does seem that high yielding real estate investment trusts (REITs) are one sector that is overrepresented among the top insider buys this week. This makes sense as the sector has vastly underperformed the market as interest rates on the ten year Treasury bond have risen from ~1.6% in late May before exceeding 3% slightly earlier this month.
The 3% level has proven to provide some tough resistance to further increases in rates so far. Friday's dismal monthly Jobs Report prompted rates to pull back under 2.9%. Here a few solid yielding REITS that look attractive here and are seeing insider buying as well.
DDR Corp. (NYSE:DDR) is an owner and manager of 417 value-oriented shopping centers representing 114 million square feet in 39 states, Puerto Rico and Brazil. A beneficial owner bought over $1.8mm in shares earlier this month. Several insiders also bought over $200K in stock in November.
The REIT yields almost four percent (3.9%) after just increasing its payout by 15% this week. The company had to cut payouts to the bone during the financial crisis but has consistently increased its payouts by over 600% since emerging from the financial crisis. Payouts are still around 20% of their level prior to the market meltdown so have a long ways to achieve their previous prominence.
Revenues are tracking to a ~10% gain this year and analysts project that growth to accelerate to ~15% in FY2014. The 20 analysts that cover the shares have a median price target on DDR, ~20% over the current stock level. The REIT is down more than 15% from its highs in May before interest rates began their rise.
American Realty Capital Properties (ARCP) continues to see insider buying. Several insiders have bought over $700K in new shares this month. This follows a buy by an insider of over $3mm on the last day in December. Insiders are made several other buys over the last six months of 2013 as well.
This REIT owns & operates mainly single tenant properties. It has a presence in almost all 50 states and is digesting a major acquisition of Cole Real Estate that should provide economies of scale once completed. It is one of the largest holdings in my income portfolio as it is selling at a significant valuation discount to single tenant brethren like Realty Income Corp. (NYSE:O) and National Retail Properties (NYSE:NNN).
American Realty Capital Properties has a robust yield of over seven percent (7.4%). The company also makes monthly dividend payouts. FFO (Funds from Operations) should increase by a third over 2013's levels in FY2014. ARCP goes for a very reasonable 11.4x FFO given its huge yield.
Disclosure: I am long ARCP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.