Insider Alarm: Will These 5 Stocks Deliver Strong Returns?

by: Brian Gorban

Below are companies that have recently had large insider buying in excess of $225,000 worth of stock. As a caveat, please only consider this as a starting point in your investment research as these are only the opinions of this blogger. If looking for other recent stocks with sizeable insider buying, look at these articles linked here and here:

Health Care REIT (HCN) predominately invests in senior living communities and medical office buildings throughout the United States. The company is quite large with a market capitalization at approximately $18 billion and annual revenues in excess of $2 billion. The stock has recently taken a beating since hitting its $80.07 52-week high and board director Fred Klipsch seems to think it is a buying opportunity. Mr. Klipsch filed on June 3 an SEC Form 4 filing showing that he has initiated a position in the company, buying 3,500 shares on the open market equating to almost $250,000 worth of stock. It is typically a bullish sign when an insider makes an initial purchase and worth looking closer into the company if the company is worthy of an investment. Operationally, the company has done well exceeding consensus estimates in each of the past four quarters. In addition, the company is trading now at a reasonable 17x forward price to earnings ratio. Lastly, the consistently growing 4.5% dividend is always welcome, especially in this low-income rate environment. The stock is worth putting on one's radar and if looking to diversify into another REIT, Annaly Capital (NYSE:NLY) and American Capital Agency (NASDAQ:AGNC) looks favorably priced.

Annaly Capital invests in mortgage backed securities and related investments since its founding in 1996. The company has considerable size with approximately $125 billion in assets and a market capitalization at approximately $13 billion. Just four weeks ago, Chairman and CEO Wellington Denahan bought a massive 100,000 shares equating to over $13 million worth of stock. The mortgage REIT sector as a whole has taken a hit as uncertainty on when the Federal Reserve will end their "Quantitative Easing" impacts this sector significantly. It looks as though Annaly has become a bargain trading now at rather reasonable valuations. A .9x price to book ratio is historically cheap along with just an 8x trailing and 9x forward price to earnings ratio. Moreover, the company is continuing to generate respectable returns on equity at approximately 11% demonstrating that management is a good steward of capital. Add in the approximate 13.5% dividend yield and that may make Annaly fit your portfolio.

American Capital Agency, like Annaly, also invests in mortgage backed securities, however it invests solely in government backed securities making it have less default and payment risk. Recently, CEO Malon Wilkus bought a sizeable 15,500 shares at an average price of $32.34 allowing us to buy it approximately 20% cheaper at the current market price. The company is also massive in size with approximately $93 billion in assets as of their last reported quarter and a market capitalization at approximately $10 billion. The company also sports an attractive .9x price to book ratio, while generating a healthy 8.5% return on equity. Perhaps most enticing is its 19.4% dividend yield which has remained steady the past five quarters. If looking into the mortgage REIT space, looking to split a position between these two companies may be wise as it eliminates company specific risk.

Linn Energy (LINE) is an independent oil and natural gas company based out of Houston. The company this past year generated just over $1.75 billion in revenue and sports a market capitalization at approximately $8 billion. The stock has recently taken a hit and seems to have grabbed the attention of board director Terrence Jacobs buying 15,000 shares on May 30th equating to over $500,000 worth of stock. Operationally, the company has done well exceeding consensus estimates in two of the last three quarters. Returns on equity though have been an uninspiring negative 15% the past twelve months, while also showing negative operating margins at nearly 8%. The company does sport though a consistently growing 9.4% dividend yield and with the prospects of natural gas in particular recently improving, Linn may be in the midst of a lucrative turnaround. I think Linn is worth a look and fellow gas company Chesapeake Energy (NYSE:CHK) may be a worthwhile for one to diversify his/her position.

Chesapeake Energy is a sizeable player in the energy space with over $13 billion in annual sales and a $14 billion market capitalization. The stock has been volatile the past year as natural gas struggles to find a clear direction. Nonetheless, board director Archie Dunham recently bought an impressive 450,000 shares equating to almost $9.5 million worth of stock indicating strong bullishness. Operationally, the company greatly exceeded consensus estimates the past two quarters. From a valuation standpoint, the stock is reasonably priced at a 10.5x forward price to earnings ratio and 1.1x price to book ratio. The company is also one of the more levered natural gas companies so if the commodity continues to move higher, look for Chesapeake to move higher. In the meantime, the company pays a decent 1.6% dividend yield while we wait for progress.

Disclosure: I am long NLY. 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.