5 Value Stocks that Insiders Like
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Insider purchases tend to be bullish signs for a company, but that's not the only factor we use to narrow down our investment choices. We also like to use the traditional value metric of a trailing price-to-earnings ratio to see how cheap a stock is relative to the company’s past performance. Using data from Fidelity and our own database of insider trades, here are five stocks that have low trailing P/E multiples and have seen at least one insider purchase in the last three months.
Two board members at The Timken Company (NYSE: TKR) bought shares in the company at the end of July at prices of about $38 per share- slightly lower than the current stock price. Consensus insider buying is a particularly bullish sign for a stock (read more about consensus insider buying). Timken manufactures bearings and other machine tools that are sold to transportation customers, including the military. The company trades at 7 times earnings on both a trailing and a forward basis, and with revenue and earnings up last quarter compared to a year ago we’d be interested in looking at the company further.
For some time now Tractors and Farm Equipment Limited has been buying shares in AGCO Corporation (NYSE: AGCO); Tractors and Farm Equipment Limited is managed by AGCO Board member Mallika Srinivasan. AGCO trades at 7 times trailing earnings, and is expected to grow substantially over the next few years due to higher agricultural demand. Its five-year PEG ratio is 0.8, reflecting that Wall Street analysts consider it a buy given its value and growth characteristics. We think AGCO deserves consideration among other potential investments with exposure to agriculture.
Multiple insiders have also been buying at CNO Financial Group (NYSE: CNO), a $2.3 billion market cap health and life insurance company (research insider activity at CNO Financial). CNO carries a trailing P/E multiple of 7, but analysts are skeptical that its strong performance (earnings were up 30% in the second quarter compared to the same period in 2011) will continue, and their estimates imply a considerably higher forward P/E, at 12. CNO is also very exposed to the broader market with a beta of 2.2. The consensus insider buy is interesting, but we don’t see a reason to choose it over Timken or AGCO.
Axis Capital (NYSE: AXS), a property and casualty insurer, saw its new CEO John Nichols invest over $1 million in the stock in late August. Axis’s stock is up 38% since a year ago, which has tracked a strong increase in earnings despite revenue being essentially flat. Axis’s $4.7 billion market capitalization places it at 8 times trailing earnings, but as with CNO the Street is pessimistic for 2013 and its consensus of $3.80 in earnings per share next year- down from an expectation of $3.98 in 2012- place it at a valuation of 10 times forward estimates. It actually seems like a more interesting insurer to research than CNO.
Finally, General Motors (NYSE: GM) CEO Dan Akerson bought 25,000 shares of the stock in August (though this was at an average price of $20.35, and the share price has risen about 20% since then). GM, at trailing and forward P/Es of 9 and 6, respectively, certainly qualifies as a value stock, and billionaire David Einhorn of Greenlight Capital recommended buying it at the Value Investing Congress earlier this month. We were a bit skeptical of his pick, as European and international operations remain weak and the U.S. hasn’t been strong enough to carry its earnings higher (particularly given its declining market share). As a result we wouldn’t want to be long GM either.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.