Insiders Have Bought These Stocks Recently
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Studies show that stocks bought by insiders tend to slightly outperform the overall market (read more about studies on insider trading). We think that this is because insider purchases signal that the insider is more confident in the company than usual; the benefits of diversification are high enough that they should overcome any casual desire to purchase stock. Of course, insiders aren’t always correct in their assessment, but confidence from insiders can be treated more or less like a stock screen in that a list of companies with recent insider purchases can be reviewed for value prospects. Here are five stocks which insiders have bought recently:
A Board member at Apache (NYSE: APA), an energy exploration and production company which derives about 80% of its revenues from oil, bought 2,000 shares at an average price of a little over $73 per share. Apache has fallen 30% in the last year, and earnings were down in 2012 from their levels a year earlier. Wall Street analysts expect the company to rebound, and as a result the forward P/E is only 7. That is lower than similar multiples at other energy companies, though many peers are actually priced at a discount in terms of trailing earnings. Billionaire Ken Griffin’s Citadel Investment Group was a heavy buyer of Apache last quarter and owned 2.6 million shares at the end of December (see Griffin's stock picks).
J. Bennett Johnston, a former U.S. Senator who is now an advisory Director at Freeport-McMoRan Copper & Gold (NYSE: FCX), directly purchased 16,000 shares of the stock on March 1st. Freeport-McMoRan dived after the company announced acquisitions of two oil and gas companies in December, which many market watchers worry will weaken its focus on its core mining businesses. Our impression is that shareholder value may have taken enough of a hit, with Freeport-McMoRan trading at 7 times forward earnings estimates and paying a dividend yield of about 4%. We’d also note that a number of hedge funds have been buying shares.
Ultra Petroleum (NYSE: UPL) had a company officer buy 3,000 shares of stock at an average price of $16.20 per share. In contrast to Apache, Ultra generates the majority of its revenue from natural gas sales; as a result, low natural gas prices have caused a steep decline in pretax income. Peers such as Chesapeake and SandRidge are also suffering under current market conditions. The sell-side is projecting $1.18 in earnings per share for 2013, which would be a current-year P/E of 14. While that would qualify Ultra for value status we would not want to be so dependent on analyst forecasts and so we would avoid the stock.
A member of Pall Corporation (NYSE: PLL)’s Board of Directors purchased nearly 3,000 shares of stock, which nearly doubled the size of his stake in the $7.7 billion market laboratory and industrial equipment company. While net income was down in Pall’s most recent quarter (which ended in January) compared to the same period in the previous fiscal year, this was entirely due to losses from discontinued operations- earnings from continued operations, as well as revenue, were up. At 19 times trailing earnings we think that the stock looks pricy, though we did find it trading only slightly above some of its peers.
Our database of insider trading filings shows that multiple insiders have been buying Boulder Brands (NASDAQ: BDBD) this month. Boulder changed its name from Smart Balance in December to reflect that it currently owns not only that brand but also some recent acquisitions producing natural and diet compliant foods (gluten-free products, for example). Consensus insider purchases are particularly likely to be bullish signals. While we do think that Boulder has substantial growth opportunities from its growing Natural division, Smart Balance products- which are still responsible for about half of sales- have been struggling in the market yet the current-year P/E is 32.
We don’t particularly like Pall, Boulder Brands, or Ultra Petroleum based on valuation. While we at Insider Monkey are unhappy with Freeport-McMoRan’s acquisition decision, we look at where the stock trades after the market reaction and think it’s possible that investors were a bit too bearish. Apache’s business has been struggling, but it might be worth taking a closer look to see what the chances are of it actually recovering to the degree analysts expect.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. InsiderMonkey has no position in any stocks mentioned. The Motley Fool recommends Ultra Petroleum. The Motley Fool owns shares of Apache, Freeport-McMoRan Copper & Gold, and Ultra Petroleum and has the following options: Long Jan 2014 $30 Calls on Ultra Petroleum, Long Jan 2014 $40 Calls on Ultra Petroleum, and Long Jan 2014 $50 Calls on Ultra Petroleum. 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!