"No man's knowledge here can go beyond his experience." - John Locke
After Monday's dip triggered by the turmoil in Ukraine, the market roared back on Tuesday on some soothing comments from Vladimir Putin. The S&P soared to a new all-time high and small caps were the strongest performers as the market had its best day so far in 2014.
My own opinion is that the market is fairly valued here as investors await on the all-important jobs report on Friday. I don't believe the market has an accurate handle on what the overall impact of the Federal Reserve's "taper' will be for equities over the longer term. The start of the withdrawal of liquidity looks like it has significantly impacted emerging markets.
Not to be cliché but it looks like a stock pickers' market as it is highly unlikely equities will produce another 30% rally like in 2013. An overall return in the single digits is much more realistic. One thing I have am weighing more here is insider buying in making investment decisions. Usually I use this as a good indicator in the small cap space especially biotech. Lately I have noticed some insider purchases in some attractively priced large caps.
The CEO of General Electric (NYSE:GE) used his entire cash bonus for 2013 to buy more stock in the company that he runs. Obviously this purchase is generating some headlines. More importantly he has now bought some $3.6mm of stock so far in 2014. This amounts to a huge vote of confidence in my opinion.
General Electric has been a long term holding in my income portfolio. The shares yield a healthy 3.5% and the company has raised its dividend payout by 120% since emerging from the financial crisis. Based on recent historical patterns, another announced 10% to 20% hike should occur by the end of the year.
The shares trade at right around 15x this year's projected earnings, which is right in line with the overall market multiple. The stock should also get a boost when General Electric spins off its U.S. consumer finance business later in the first half of the year. The company is a good proxy to play the long term growth in emerging markets due to its manufacturing of big ticket items (jet engines, locomotives, million dollar medical equipment).
Hess Corporation (NYSE:HES) was my favorite mid major energy concern in 2013. I cashed out for huge gains at end of the year and put my money in mid major Devon Energy (NYSE:DVN) as it appears to be going through the same transformational process that unlocked so much shareholder value at Hess in the previous year.
However, based on a recent insider purchase; I might have exited my profitable trade a bit too early. A director bought almost $1mm in new shares in mid-February. It was the first insider buy since August of last year.
Despite last year's big run up, HES is not expensive at just over book value. Analysts also believe the shares could have some further upside. The 20 analysts that cover the shares have a $91.50 mean price target on HES. This is ~15% above the current stock price. The shares also yield a small dividend of 1.3%, which should increase significantly in coming years as the company continues to be more focused on rewarding shareholders.
Disclosure: I am long DVN, GE. 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.