Insiders Have Bought BlackRock, Adobe, and More
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We’ve reviewed a number of studies on insider trading and have concluded that stocks bought by insiders narrowly outperform broader market indices (read more about studies on insider trading). Our impression is that this is because insiders’ pocketbooks are already dependent on the company, and so they should generally diversify their investments to avoid too much exposure to any company-specific events. Insider buys therefore signal that the stock’s prospects are believed to be so strong that they overcome this hurdle. Of course, investors shouldn’t buy every stock that insiders like (not that they can anyway), but we think that it can be useful to review these stocks and then do more research if they (or a similar company) turn out to be attractive buys. Here are five stocks that insiders have bought recently.
A member of the Board of Directors at BlackRock (NYSE: BLK) bought $100,000 worth of the stock at $233.59 per share. The asset management industry in general has been performing very well recently, with BlackRock and many of its peers such as State Street Corporation and Franklin Resources reporting earnings growth rates of about 20% in their most recent quarter compared to the same period in the previous year. BlackRock’s trailing P/E is 17, slightly higher than these other companies we’ve mentioned, and we think that asset management could be a source of several potential value ideas.
Amy Banse, a Board member at Adobe Systems (NASDAQ: ADBE) and the head of Comcast's Comcast Ventures, bought 5,000 shares of Adobe’s stock on Jan. 16. Adobe is a top pick at Jeffrey Ubben’s ValueAct Capital; that fund had $1 billion invested in the stock at the end of the third quarter of 2012 (check out more of Ubben's stock picks). In the third quarter, Adobe’s revenue was flat from a year earlier and operating income was actually down slightly, so we think that the current valuation--the trailing and forward P/Es are both in the 20s--may actually be too high.
Jack Daniels and Southern Comfort manufacturer Brown-Forman Corporation (NYSE: BF-B), which owns other brands of alcoholic beverages as well, had its chief production officer buy just over 2,000 shares of the stock at an average price of $63.44. Brown-Forman is another company where we’re not wild about the pricing: The stock trades at 25 times trailing earnings, with moderate earnings growth in its last quarterly report compared to the same period in 2011 but flat sales. Comparable companies were generally valued at over 20 times trailing earnings as well. Chilton Investment Company, managed by billionaire Richard Chilton, was buying the stock in the third quarter (find Chilton's favorite stocks).
Specialty chemicals company Kronos (NYSE: KRO) had a Board member buy 5,000 shares at $19.20 per share. After rallying strongly in the last three months, Kronos is still down 8% from its levels a year ago, and short interest is very high with 30% of outstanding shares held short. We would note that the same Board member, Glenn Simmons, was buying in November at prices just above $13. Business at Kronos has been down (which caused the stock’s decline) and the stock is currently valued at 15 times expected earnings for 2013.
An insider bought 50,000 shares of Agree Realty Corporation (NYSE: ADC), a retail real estate investment trust. REITs are often prized by income investors for their dividend yields; Agree has paid 40 cents per share in dividends for each of the last eight quarters (which is a 5.6% yield at the current price), but this was down from 51 cents per quarter before that time. Agree’s market capitalization is only about $320 million, but there is over $1 million in average daily dollar volume.
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 recommends Adobe Systems and BlackRock. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!