Insiders Are Crazy About These 5 Stocks
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Studies show that stocks bought by insiders tend to beat the market, though the effect is generally very small. The best results come from consensus insider purchases. According to academic studies stocks bought by multiple insiders outperformed the market by 7 percentage points per year on the average over a 25 year period (learn more about studies on consensus insider purchases). We think that these results are the way they are because insiders have to be particularly confident in a stock’s prospects in order to ignore the benefits of diversification and invest more of their own money in the company. As such we think insider purchases can be treated like other stock screens: Take a quick look at the company and decide whether or not it is worthy of further research. Here are five stocks that at least three insiders have bought in the last 30 days.
Several insiders bought shares in Denbury Resources (NYSE: DNR), a $7.2 billion oil and gas exploration and production company. In the third quarter of 2012, Denbury’s revenue was up slightly versus a year earlier but earnings were down, likely reflecting the combination of lower natural gas prices and increased production. The stock trades at 16 times earnings, whether we use trailing results or analyst forecasts for 2013. Billionaire George Soros initiated a position in Denbury during the third quarter of 2012 (see Soros's stock picks) and billionaire Leon Cooperman’s Omega Advisors also increased its holdings of the stock (check out more stocks Cooperman was buying).
Since the beginning of 2013 four different insiders have been buying Abraxas Petroleum (NASDAQ: AXAS), another oil and gas exploration and production company. Abraxas has a market capitalization of only about $200 million, but on average about 800,000 shares are traded per day and the current market price is about $2.10, making for over $1.5 million in daily dollar volume. When the fourth quarter comes in Abraxas is expected to be barely profitable for 2012, but the sell-side expects the company to do much better this year and so the current-year P/E is 18. 12% of the outstanding shares are held short.
Synageva Biopharma (NASDAQ: GEVA), which is a development stage biotechnology company, is another stock that multiple insiders have been buying in the last month. One Board member’s trust recently bought about 21,000 shares at an average price of $47.53 per share, roughly $1 million in stock. Synageva’s chief drug candidate is a treatment for lysosomal acid lipase deficiency. It is another popular short target with 15% of shares held short, and as a development stage company the Street does not expect it to turn a profit this year.
Tom Gayner, the chief investment officer at Markel Corporation (NYSE: MKL), and other insiders have been buying the stock; while these insider buys have only been between 100 and 1,000 shares, the per share price of $475 makes even a small number of shares a significant insider purchase. Markel is an insurance company that invests its assets in the market under the direction of Gayner and his team. It is currently valued at a small premium to book value and at 23 times analyst consensus for 2013. Markel is in the process of acquiring fellow insurance company Alterra Capital Holdings.
Three insiders have bought shares of biotech company Omeros Corporation (NASDAQ: OMER) since the beginning of the year, though in two cases the purchases have been relatively small. Omeros is developing treatments for conditions affecting the central nervous system. In the third quarter of 2012 the company did report an increase in revenue compared to the same period in 2011 but it remains unprofitable and is expected to be in the red this year as well. It is another small-cap stock with about $150 million in market cap, but the average trading volume is over 200,000 shares and the current price is about $5.60 so it too tends to have over $1 million in 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 Markel. The Motley Fool owns shares of Denbury Resources and Markel. 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!