What are we looking for?
Stocks reflecting a combination of cheap valuations relative to the S&P 500 index, increasing ownership by insiders and long-term price momentum.
The screen
Our approach is based on the insider investment strategy that tracks buying and selling activity by company insiders. This strategy assumes executives have considerable experience and understanding of industry cyclical trends, with a better grasp on industry fundamentals than others, resulting in better insight into their company's outlook. Sustained share purchases by insiders might indicate their confidence in the company's future.
We look for companies trading at price-earnings-to-growth (PEG) multiples lower than the main index (S&P 500 is 2.1); trading at a significant discount to the average analyst price target; where insiders have been consistently buying shares over the past 24 months; and where average daily closing prices over the past six months that are greater than the trailing 12 months.
Our criteria:
- PEG ratio less than the S&P 500’s 2.1: PEG is a company’s P/E divided by the expected earnings growth rate over the next 12 months. Lower figures are preferred;
- Price discount to analyst target less than 5 per cent – the ratio of current market price to the average analyst price target;
- Six-month average price is more than one-year average price;
- Insiders have been consistently buying shares over the past 24 months;
- An insider-net-buyer ratio at or greater than 75: This percentile ratio compares the number of net insider buyers and sellers relative with the total number of insiders, while adjusting these inputs to emphasize transactions from the past 90 days.
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What did we find?
Citigroup Inc. tops our list out with a $165-billion (U.S.) market cap. The company is making significant progress in streamlining operations while maintaining a broad set of product offerings, and a global presence across Asia, Latin America and the United States.
This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio.
Investors should conduct further research before investing.
Khaled Eniba works in the financial and risk unit of Thomson Reuters and specializes in banking and research.