Insiders Are Crazy About These Stocks
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The principles of diversification conclude that it is unwise to accumulate too much company-specific risk. This is why investors are often advised to buy stocks in different industries or sectors; it is also why company insiders are normally expected to sell rather than buy shares. When insiders buy stock, it signifies a certain level of confidence in the company. This is an explanation for why insider purchases tend to be bullish signals, with consensus insider purchases--buying by multiple insiders--outperforming the market on average (Read our analysis of studies on consensus insider purchases). As such, we can think of stocks bought by multiple insiders as similar to the results of a stock screen: a source of prospects for potential investment if further research also suggests they are good buys. Here are five stocks that our database of insider trading filings shows have been bought by multiple insiders in the last month:
Multiple insiders have bought shares of Informatica Corporation (NASDAQ: INFA), a $3.9 billion market cap data software and services company. Informatica’s stock price is down 27% in the last year, matching the decline in earnings which took place in its most recent quarterly report compared to the same period in the previous year. The financial community is already prepared for a recovery--the trailing and forward P/Es are 43 and 22 respectively--but apparently many company insiders believe that the stock has even more of an upside. Billionaire Stephen Mandel’s Lone Pine Capital initiated a position of 1.9 million shares in Informatica during the fourth quarter of 2012 (see Mandel's stock picks).
Firstmerit Corp (NASDAQ: FMER), a holding company whose banks operate in the Midwestern United States (most of its locations are in Ohio), is another stock where we have tracked consensus insider buying. The market capitalization of $1.7 billion places Firstmerit right at the book value of its equity. This is another stock that has fallen in the last year against a rising market, and combined with an increase in net income the earnings multiples look fairly low as well. With a dividend yield of over 4%, going by current prices and recent payments, it could be worth taking a closer look at the company.
An extremely high dividend yield can be found at Two Harbors Investment Corp (NYSE: TWO). The real estate investment trust has generally made payments of 40 cents per share (except for some instability in recent quarters) and even a small decrease in that return going forward would leave the yield above 10%. Real estate investment trusts often pay high yields as they comply with regulations requiring them to distribute a large share of taxable income to shareholders in order to preserve their tax treatment. Two Harbors invests in mortgage backed securities and other real estate loans.
Mortgage servicing company and fellow REIT Home Loan Servicing Solutions Ltd (NASDAQ: HLSS) has had three members of the Board of Directors buy shares since the beginning of February. Home Loan Servicing Solutions pays a dividend yield of above 5%. Millennium Management, managed by billionaire Israel Englander, added to its stake last quarter and closed December with 2.4 million shares in its portfolio (find Englander's favorite stocks). As with Two Harbors, it’s a worthwhile prospect for income investors who are comfortable looking at companies tied to mortgages.
Oiltanking Partners LP, which stores and transports oil and petroleum products, has also been popular among insiders according to our insider trading database. At a market cap of $1.7 billion it trades at 30 times trailing earnings, though Wall Street analysts are very bullish on the future: The five-year PEG ratio is 0.6. However, net income numbers have not been particularly good in recent quarters despite very strong performance on the top line. We’d note that Oiltanking Partners carries a beta of 0.6. and a dividend yield of 3.5%.
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 Informatica. The Motley Fool owns shares of FirstMerit. 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!