A Good Idea to Follow the Insiders on these Stocks?
Alex is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Insider trading has long been considered by many to be an important indicator of a company's expected performance. An insider purchase might be a sign of good things to come for the stock. However, it is always essential to do due diligence and not base a buy or sell decision on insider activity alone, which is why in this post I will be analyzing three stocks that have had recent, significant buying activity. I've also only chosen stocks that have buy recommendations by some analysts: health company United Health Group (NYSE: UNH), regional bank holding Huntington Bancshares Incorporated (NASDAQ: HBAN), and investment management firm BlackRock, Inc. (NYSE: BLK).
United Health Group
- Director Roger Lawson purchased 2,200 shares on Jan 8. The buying price was $54.42/share, which puts the total dollar value of the operation at $108,840. Company insiders, however, have not been as buy-friendly in the past: Stephen Semley (UNH's CEO), as well as other company directors, sold more than 1.5 million shares in November and December.
- The company's valuation is attractive, as it currently trades at 10.59x. Future estimates are bullish, as UNH's forward P/E is only 9.24.
- With regards to price targets, UNH currently has an average target price of $65.81, which means that there is a 16.8% upside implied. It also has an average analyst recommendation of 1.81 (buy).
- The company is in a sector (healthcare) that is liked by many; and few are the voices that are bearish on this sector.
- While it is not one of the most generous dividends out there, UNH pays $0.21 per share, which represents a 1.51% yield.
- My take: United Health Group seems to have very attractive fundamentals, and it is viewed favorably by most analysts. Furthermore, the fact that a company's director has decided to put some of his money in the line might be a sign for better things to come. Investors should definitely consider buying UNH if they want to invest in a diversified health business.
- On Jan. 23, the company's President (and CEO) Stephen Steinour bought 40,000 shares at $7.04 each (that's a total of $281,587). Aside from one sell in late November, HBAN has a rich history of insider buying.
- With regards to valuation, the stock trades at an attractive P/E of 9.90x. The forward P/E is marginally higher, but still low at 10.19.
- Analysts seem to like the stock's chances this year, and have an average price target of $7.23. That implies an upside of a bit less than 4%. The average recommendation, however, is a neutral 2.50.
- HBAN is also a dividend-paying company, with $0.16 per share (a yield of 2.28%).
- My take: The stock is trading at an attractive valuation, and the fact that its CEO is buying a significant amount of shares is a good sign. In fact, the stock is currently trading at a lower price than when Mr. Steinour bought the shares. To be fair, the implied upside from average price targets is not terribly attractive, and neither is the average recommendation, but investors will get a 2.28% yield while they wait.
- Director John Varley bought 427 shares on Jan. 18, at a price of $233.59/share (total value of a little under $100,000).
- Current P/E is 17.15, which means the stock is not necessarily cheap at its current level. However, future estimates are bullish, as the stock has an attractive forward P/E of 10.19 (the exact same figure as HBAN).
- Analysts like BlackRock, as they do with most financial stocks this year, and the stock has an average price target of $249.39 (5.4% implied upside). The average analyst concensus recommendation is 2.20.
- BlackRock pays a dividend of $6.72 per share (a yield of 2.85%).
- My take: BlackRock is an investment management giant that has performed superbly as of late. As investor appetite returns, BlackRock's business should continue growing, and so should the stock price. While current valuations don't necessarily scream "buy," future projections are moderately bullish.
|P/E||Forward P/E||Avg Analyst Rec||
Implied Upside from Avg PT
All three stocks are moderately attractive, and each one of them has a certain edge over the other two in some area. However, despite having the lowest dividend, I think that UNH is the most attractive of the stocks with recent insider buying: it has a low P/E (and it's not a financial company like HBAN or BLK, where P/E's tend to be lower), it is viewed very favorably by most analysts, and it's in a growth sector. The other two, however, are definitely worth considering as well.
wheckster has no position in any stocks mentioned. The Motley Fool recommends BlackRock and UnitedHealth Group. The Motley Fool owns shares of Huntington Bancshares. 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!