Roberto Pedone from Thestreet.com highlights June stocks with strong insider purchases -- indicating their belief that these companies have big upside potential.
The key word in that last statement is "belief." Just because a corporate insider believes in his stock doesn't make it a winner. It is the large institutional money managers running big mutual funds and hedge funds that drive stock prices. That said, many savvy stock operators will follow insider buying activity when they agree with the insider -- it's important to monitor insider activity, but it's critical to ensure the trend of the stock coincides with the insider buying.
Here are his June picks which we will compare with his May picks:
- Navistar International (NAV) sells commercial and military trucks, buses, diesel engines, recreational vehicles and chassis, as well as provides service parts for trucks and trailers. This stock is down 6% so far in 2011, so insiders might be finding some value here during the recent market pullback
- Dollar Tree (DLTR), an operator of discount variety stores offering merchandise at the fixed price of $1, is considered a great stock to own during slow or tough economic times. This stock is off to a decent start in 2011, with shares up over 18%
- Equity One (EQY), a real estate investment trust that owns, manages, acquires, develops and redevelops neighborhood and community shopping centers. This stock has done next to nothing all year
- Helix Energy Solutions Group (HLX), provides reservoir development solutions and other contracting services to the energy market, as well as to its own oil and gas properties, HLX is already up over 32% in 2011
- Fifth Street Finance (FSC), lends to and invests in small and mid-sized companies in connection with investments by private equity sponsors. This stock hasn't done
much in 2011
We will compare this with the May selections:
- Pacific Sunwear (PSUN), a specialty retailer rooted in the action sports, fashion and music influences of the California lifestyle. This stock has been absolutely crushed in 2011, with shares off by around 37%, so clearly insiders are finding some value
- Walter Energy (WLT), a producer and exporter of metallurgical coal for the global steel industry that also produces steam coal, coal bed methane gas (natural gas), metallurgical coke and other related products. This stock hasn't done much so far in 2011, with shares virtually flat on the year
- Nasdaq OMX Group (NDAQ), a global exchange group that delivers trading, exchange technology, securities listing and public company services across six continents. This stock is off to a decent start in 2011, with shares up around 12%.
- People's United Financial (PBCT), which operates as the bank holding company for People's United Bank. This stock is down so far this year, with shares off by around 3%.
- KeyCorp (KEY), which provides a range of retail and commercial banking, commercial leasing, investment management, consumer finance and investment banking products and services. This stock has pretty much done nothing in 2011, with shares down around 3%.
We will also compare it with the Fool's Matt Koppenheffer's selection of what he considered five stocks for long term dividend performance. Bear in mind these picks are likely to be something that will show growth in the future and will determine how effective insider buying strategies are.
Company | Dividend Yield |
|---|---|
| Johnson & Johnson (JNJ) | 3.4% |
| McDonald's (MCD) | 3% |
| Kimberly-Clark (KMB) | 4.1% |
| Sysco (SYY) | 3.3% |
| Mattel (MAT) | 3.5% |
We will also compare this with our ETF dividend portfolio benchmark:
Asset | Fund in Portfolio |
|---|---|
| REAL ESTATE | ICF (iShares Cohen & Steers Realty Majors) |
| CASH | CASH |
| FIXED INCOME | TIP (iShares Barclays TIPS Bond) |
| Emerging Market | VWO (Vanguard Emerging Markets Stock ETF) |
| US EQUITY | DVY (iShares Dow Jones Select Dividend Index) |
| US EQUITY | VIG (Vanguard Dividend Appreciation ETF) |
| INTERNATIONAL EQUITY | IDV (iShares Dow Jones Intl Select Div Idx) |
| High Yield Bond | HYG (iShares iBoxx $ High Yield Corporate Bd) |
| INTERNATIONAL BONDS | EMB (iShares JPMorgan USD Emerg Markets Bond) |
- Street's June 5 Stocks With Big Insider Buying 2011 -- Total of $10K invested equally in each stock
- Street's May 5 Stocks With Big Insider Buying Long term -- Total of $10K invested equally in each stock
- Fool's 5 Dividend Payers to Save your Portfolio -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Street's May 5 Stocks With Big Insider Buying Long term | 75% | 217% | 2% | 3% | 14% | 26% |
| Street's June 5 Stocks With Big Insider Buying 2011 | 39% | 227% | 11% | 34% | ||
| Fool's 5 Dividend Payers to Save your Portfolio | 26% | 235% | 14% | 68% | 14% | 69% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 21% | 218% | 6% | 30% | 6% | 27% |
| Retirement Income ETFs Tactical Asset Allocation Moderate | 16% | 172% | 12% | 97% | 11% | 81% |
Bear in mind that you are trading off returns for volatility. It's always important to look at the Sharpe Ratio which tells you the risk you are accepting for the return. Note, for example, that over the five year time frame, the TAA ETF portfolio gives you the best Sharpe Ratio even though it didn't produce the highest return.
We see that over the short term, the June selection has fared better than the May selection. We will continue to track these portfolios to see whether these insiders know what they are about but after two of these, it doesn't really seem worth pursuing the many combinations that might be out there. If a longer term track record reveals more interesting performance, we can always come back to it.
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: Author no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
