Insider Buying In These 3 Stocks May Be A Strong Signal To Buy

Includes: CHK, CIM, LUK
by: Brian Gorban

There are many indicators to decide whether a stock is a great investment or not. For me, insider buying ranks strongly since I always like it when management has their interests aligned with their shareholders. This makes them more likely to raise their dividend, repurchase shares, be more cautious on investments, and overall be a better steward of the company's capital.

These are some stocks that have caught my eye:

Jefferies Group (JEF) operates as a global securities and investment banking company. On August 15, a number of insiders collectively purchased over 60,000 shares at $16.56. Since that time, the stock has only gotten cheaper sitting just above $14/share and almost 50% below its 52-week high. It's trading at 10x price/earnings, 1.1x price/sales, 1x price/book, and has a respectable 2.0% dividend yield. I think fundamentally this is a buy at $14/share and for the technical analysts, has also formed a solid double bottom at these levels.

Chimera Investment (NYSE:CIM) is a mortgage REIT I've written about before as almost 250,000 shares were purchased by insiders in August alone. I said it was a buy at $2.85/share and still think it's a buy here at $3.05 trading still at a cheap .9x price/book, 5x price/earnings, and 17.3% dividend yield. Moreover, if looking for more diversification in the mortgage REIT sector and insider buying, an Annaly (NYSE:NLY) insider bought 50,000 shares on August 8 at $17.13/share and Invesco Mortgage (NYSE:IVR) insiders since August 4th have bought collectively over 36,000 shares at an average price of approximately $18/share. I wrote recently about those two quality companies as well here.

Chesapeake Energy (NYSE:CHK) engages in the acquisition, development, exploration, and production of natural gas and oil properties in the United States. In the month of August, there was an insider who sold 40,000 shares at $34.62, but insiders then proceeded to buy over 215,000 shares at an average price of about $29/share throughout August. The stock now trades at $31/share and the valuation metrics don't look too exciting. Trading at just over 21.5x price/earnings, 2.1x price/sales, and 1.6x price/book and rather small 1.1% dividend yield doesn't get me too excited. I'd rather invest in the major integrated oil and gas companies, such as Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and BP, trading at much lower multiples with higher dividend yields as I wrote about here.

Disclosure: I am long NLY, CIM.