Economic theory suggests that investors should diversify their market exposure in order to avoid being severely harmed by company-specific events.
One application of the principle of diversification is that company insiders should avoid buying shares in the company, except on occasions when they are very confident in its prospects. As a result, it’s no surprise that studies show that stocks bought by insiders tend to outperform the S&P 500 (learn more about studies on insider trading).
This is why, in addition to developing investment strategies based on hedge fund filings (read more about our hedge fund strategies), we keep track of significant insider purchases (generally, those where the insider has invested $50,000 of their own money or more). Here are five stocks that insiders have purchased in the last few days, buying about $50,000 or more in stock in doing so:
A Board member at meat producer Tyson Foods, Inc. (NYSE:TSN) bought 10,000 shares at an average price of $23.37 per share. Cliff Asness’s AQR Capital Management was one of the hedge funds buying shares of Tyson during the third quarter of 2012, closing September with 3.8 million shares in its portfolio (check out more stock picks from Cliff Asness). Tyson trades at 14 times trailing earnings, and reported earnings growth of over 10% last quarter compared to the same period in 2011. As a result we think that Tyson and some of its peers are good value prospects (compare Tyson to its peers).
Yum! Brands, Inc. (NYSE:YUM) Board member Robert Walter purchased 35,000 shares on February 6th at about $62 per share. Yum is coming off a quarterly report in which it issued poor guidance for 2013, which sent the share price down; Walter may have believed that the market overreacted, particularly as Yum expects earnings growth to resume next year and long term it does have a potentially attractive market position in China.
Yum was one of the most popular restaurant stocks among hedge funds in the third quarter of 2012 (see more restaurant stocks hedge funds love). When we looked at the stock we were skeptical of the bullish case, and think it’s best to wait to see how it does later this year.
One gaming company's CEO was buying stock:
Source: Argentine Beef Packers S.A.
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