Insiders Bought These Stocks Recently
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At Insider Monkey, we track insider purchases because we think that they are an effective signal of an insider’s confidence in a company. Since the insider already has an economic connection to the business, economic theory predicts that they should sell shares in order to increase diversification unless they believe strongly that the stock is undervalued. This is why we’re not surprised that on average stocks bought by insiders narrowly outperform the S&P 500 (read more about studies on insider trading). The effect is fairly small, so we think that it is best to treat insider purchases much like a stock screen: Take a brief look at each company and decide whether or not it is worthy of further research. Here are five stocks that insiders have bought recently:
The CEO of Electronic Arts (NASDAQ: EA) bought over 30,000 shares of the stock at an average price of $15.90 per share. EA and the rest of the electronic games industry has struggled over the last couple years as the transition to tablet and mobile gaming caught many companies by surprise. Net losses have been declining, despite lower revenue, as EA has been successfully cutting costs and analysts believe that earnings will be positive on a forward basis. Specifically, the forward P/E is 15, and while we are a bit skeptical we certainly find it interesting that the CEO is buying.
A member of ADT's (NYSE: ADT) Board of Directors has bought 2,000 shares of the home and business security company at an average price of $46.35 per share. ADT was recently spun out from Tyco International, presenting a potential driver of earnings growth for the company: Management of spinouts is often able to improve operations without having to concern itself with the needs of a larger company. However, at a forward P/E of 24, the market seems to have already priced in quite a bit of upside into the current stock price.
William Osborn, a Board member at Abbott Laboratories (NYSE: ABT), bought 10,000 shares of the stock at prices generally a little under $34. Abbott is a provider of pharmaceuticals and medical instruments and supplies. Revenue and margins have been up, contributing to a 16% increase in operating income last quarter versus a year earlier (earnings only declined due to an expense related to debt extinguishment). Billionaire Israel Englander’s Millennium Management bought the stock during the third quarter and closed September with about 940,000 shares in its portfolio (see Englander's stock picks).
Our database of insider trading filings shows that Osborn has also bought shares of General Dynamics Corporation (NYSE: GD), a $23 billion market cap company which is primarily a manufacturer of military assets for the Department of Defense (the U.S. government makes up over half of its revenue). Defense companies are generally cheap as investors expect military spending to be reduced as part of federal fiscal policy, and General Dynamics is no exception with a current-year P/E multiple of 10. Berkshire Hathaway is a major investor in General Dynamics, with Warren Buffett’s holding company reporting a position of 3.9 million shares at the end of September (find Buffett's favorite stocks).
Triumph Group (NYSE: TGI) also had a Board member report buying shares of the stock, in that case at a price of $69.21 per share. Triumph manufactures aircraft parts, and so is dependent on the aerospace industry; the company reports that half of its sales are to Boeing. In the quarter ending December 2012, the third quarter of Triumph’s fiscal year, sales increased by 8% and earnings were up 14%. Those are intriguing growth rates for a company whose earnings multiples are in line with those of aerospace and defense companies, in the 10-11 range, when Triumph likely has less dependence on military spending (though of course the degree of customer concentration is a concern).
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 owns shares of General Dynamics. 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!