What Insiders Are Buying

 | Nov 01, 2012 | 10:00 AM EDT
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We like to track insider purchases because insiders are generally best served by diversifying their investments away from the same company. Buying the stock should signify particularly strong confidence in its prospects, and it is certainly a better indicator of insider optimism than predictions on a conference call. Market players can't buy every stock that has seen insider activity, but the set of stocks that insiders have bought recently can serve as a good starting point for further research. Here are some stocks that have had insider purchases recently, according to Insider Monkey's database of insider transactions.

William Swanson, CEO of Raytheon (RTN) and a board member at NextEra Energy (NEE), bought about 7,200 NextEra shares on Oct. 26 at an average price of $69.53 per share. NextEra, a $30 billion market-cap electric utility, pays a dividend yield of 3.5% (generally below the yield at other large-cap electric utilities). In the first nine months of 2012, the company experienced a modest decline in revenue relative to the same period in 2011 but earnings were up 18%. So far this year, $6.5 billion in cash has been used in investing activities, about twice NextEra's cash flow from operations. At a trailing price-to-earnings multiple of 14, it may offer an attractive combination of value and income.

CoreLogic (CLGX), which provides data and analytics regarding various residential real estate markets, has seen three different insiders buying the stock in late October. The CEO, CFO, and a board member have purchased a total of 20,000 shares; in terms of market value, these transactions have amounted to nearly half a million dollars (read more about CoreLogic). The shares trade at 33x trailing earnings, but sales have been up and analyst consensus for 2013 implies a forward PE of 15 and a five-year price-earnings-growth ratio of 0.8. As such, sell-side analysts agree with insiders that the company will see strong growth in the next few years. We'd like to see better growth numbers before buying, but we certainly wouldn't be short the stock.

CEO Daniel Hesse of Sprint Nextel (S) doesn't think that the company's stock price has risen enough in 2012 (it has more than doubled year to date). He bought 20,000 shares on Oct. 26 at an average price of $5.53 per share. Sprint, like Nextera, has recently been making large capital expenditures, so its free cash flow in the third quarter was negative. While the company has been doing well in terms of customer service and pricing, it remains unprofitable and is expected to still be in the red next year, so we plan to avoid the stock for now (learn more about the purchase and how Sprint compares to its peers).

John Brennan, a board member at General Electric (GE) also made a six-figure buy in a household-name company by purchasing 5,000 shares at an average price of $21.20 per share (see our discussion of GE). The $220 billion market cap conglomerate had a good Q3, with net income up 8% off of increases in both revenue and margins. GE trades at 12x forward earnings estimates, similar to peers such as Siemens (SI) and Honeywell (HON). Those peers have also been experiencing better growth rates recently, so we would advise investors to consider those stocks instead.

Air Products & Chemicals (APD) board member Lawrence Smith bought 5,000 shares on Oct. 23 at an average price of $77.36. Smith now owns about 10,000 shares, so this is a significant increase in his exposure to the maker of industrial gases such as  oxygen and helium, and a number of chemical products. In the fiscal year that ended in September, Air Products & Chemicals increased its dividend payment for the 30th straight year (the dividend yield is now 3.3%) and had very little change in either its revenue or its net income. We had thought that, at 14x trailing earnings, it was a better value than its peers.

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