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Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high net worth clients. michael@wickhaminvestments.com
What are we looking for?
Last week we looked at Canadian corporate insiders, those individuals who are directors or senior officers of a Canadian company, or those who own more than 10 per cent of a company's voting shares. Studies have shown that insiders are often smart investors when it comes to their own companies – buying when the stock is attractively priced and selling when it's overvalued.
This week my colleague Allan Meyer and I look at the buying habits of insiders at U.S. companies.
The screen
The companies are ranked by market capitalization, and we have shown only companies that are over $500-million (U.S.).
All of them had to have at least one insider buyer, and no insider seller.
We are showing the number of insiders who have bought their company's stock on the open market in the past six months.
We are also indicating how many insiders own shares in the company, and the percentage increase in insider holdings during the past six months.
We are looking for a low price-to-book ratio (P/B) and a low forward price-to-earnings (P/E) ratio.
This ratio is based on analysts' consensus of future earnings in the next 12 months.
What did we find?
The 2,158-per-cent increase in insider holdings at Silver Bay Realty really jumped off the page.
Silver Bay is a newly organized company that acquires, renovates, leases and manages single family homes in the United States.
The P/B is higher than we'd like, as is the P/E.
The big dividend payers, Hatteras Financial and Armour Residential, are companies that invest in residential mortgage-backed securities. In both cases, the P/E and P/B are very attractive.
New Mountain Financial and ACCO both score very well with a low P/B and P/E.
New Mountain sports a hefty dividend yield, and invests in the debt of high-quality companies, while ACCO is the world's largest supplier of branded office products.
Conclusion
Insiders are mostly value investors. They tend to sell less at market lows, and their buying activities pick up as the market declines. Strong insider buying is often a clue that a stock is selling at bargain prices.
While further work is always needed, investors should watch insider activity as it could present a clue as to a stock's direction.