Insiders Are Buying These Stocks Right Now
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Economic theory suggests that it is rational to diversify one’s wealth, and one application of this theory is that company insiders should not buy their employer's stock unless the expected gains are high enough and there's enough confidence to offset this incentive. Studies show a small amount of outperformance by stocks bought by insiders. We provide brief coverage of insider purchases so that investors can decide whether or not a particular stock is worth further research. Here are five stocks which insiders have bought recently:
An insider at Boeing (NYSE: BA) purchased 1,500 shares at an average price of $91.59 per share. Boeing’s revenue and operating income were slightly down in the first quarter of 2013 versus a year earlier, with earnings only rising on a lower effective tax rate. We track quarterly 13F filings from hedge funds and other notable investors as part of our work developing investing strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and can see that billionaire Ken Griffin’s Citadel Investment Group built a large position in Q4 2012. We’d warn potential investors that there has also been a high volume of insider selling recently at Boeing, though there is the diversification incentive to keep in mind; the stock is also up about 20% year to date.
A Board member at Philip Morris International (NYSE: PM) disclosed a purchase of 1,000 shares on April 26. This same insider has been a fairly prolific buyer of Philip Morris, with purchases in February of this year and November and August of 2012. The cigarette company pays a dividend yielding 3.6%, which is high, although it is lower than can be found at some industry peers. Recent financial reports indicate that the business is essentially flat, even though in theory, a more international focus should give Philip Morris more growth potential than some other cigarette companies.
Gold miner Newmont Mining (NYSE: NEM) had a trust related to the company’s new CEO (and former COO) buy 3,000 shares at prices close to $33. Gold miners in general are off to a bad start this year; Newmont saw a 41% decline in its net income last quarter compared to the first quarter of 2012. With gold prices falling even lower in the past couple months, it, as well as the rest of the industry, have seen their stock prices fall considerably year to date. First Eagle Investment Management reported a position of 6.3 million shares in Newmont at the end of December.
The CEO of $1 billion market cap computer peripherals manufacturer Logitech (NASDAQ: LOGI) added 16,000 shares to his direct holdings. Due to a troubled PC industry affecting demand for the company’s products, Logitech has fallen 34% in the last year. Revenue has been down considerably, and for the most recent fiscal year (which ended in March) the financial statements actually show an operating loss. Analyst expectations imply a forward P/E of 21, which is fairly high. We’d note that the CEO had previously bought shares in August 2012, with the stock decreasing in price since that time.
We tracked a purchase of NuStar Energy (NYSE: NS) in late April by a member of the company’s Board of Directors. NuStar is a $3.8 billion market company which stores and transports petroleum products including crude oil, refined petroleum products, and chemicals. The company currently makes quarterly dividend payments of nearly $1.10 per share, which comes out to an annual yield of over 8%. That is certainly of interest, although earnings decreased 17% in its most recent quarter compared to the same period in the previous year, and so, we’d have to be satisfied that operating cash flow has remained high enough to make those dividend payments.
We’re not particularly interested in Logitech or Newmont Mining, and in the case of Boeing, we’re a bit leery of the flat business in recent quarters as well as the insider selling -- it’s probably best to wait on that company until we see another quarter or two of results. NuStar and Philip Morris are somewhat attractive dividend stocks, though of course income investors should do due diligence on how safe NuStar’s payments are in particular.
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This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in PM. The Motley Fool recommends Logitech International SA (USA). The Motley Fool owns shares of Philip Morris International. 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!