Back in July my colleague Lawrence Meyers wrote an article about four stocks with recent insider buying.
The conventional wisdom when we see meaningful insider buying assumes that the insiders are buying because they believe their stock to be undervalued. Considering no one knows their businesses as well as company insiders do, insider buying is often seen as a sign that it is a great time to buy.
Today I’m revisiting the four stocks with insider buying that Lawrence wrote about back in July. Nearly six months later, did insider buying have the profound effect on those stocks that you might expect?
1. Blue Capital Reinsurance Holdings (NYSE: BCRH)
When he wrote about Blue Capital Reinsurance back in July, Lawrence highlighted recent purchases by the CEO and two directors amounting to around $380,000. These insiders purchased their shares at around $17. Interestingly, another competing reinsurance company purchased $1.75 million worth of shares around the same time.
The stock is down nearly 10% since Lawrence’s article, but at $17.72 per share, is still trading above where the company insiders made their purchases.
With a 6.8% dividend due at the end of this month, investors still have a chance to buy in near where these insiders and an industry competitor did.
2. General Finance Corp. (NYSE: GFN)
General Finance Corp is in the business of owning and leasing equipment in the mobile storage, modular space and liquid containment industries. Basically, it is in the business of those metal containers used for shipping and storing just about every commercial good.
Just before Lawrence wrote about General Finance Corp., one of its executive vice presidents purchased $122,000 worth of its shares at $9 a pop. Today, the stock trades around $8.70, making it an even better buy than it was when the insider made his purchases.
The stock remains a good buy, with everything else Lawrence wrote about the company remaining largely unchanged – except for the price.
3. Republic Services Inc. (NYSE: RSG)
Republic Services is the well-known waste management company you’ve probably seen collecting trash in a neighborhood near you. It offers its services in 39 states and Puerto Rico.
Since Lawrence’s article, the stock is up 6.5%, beating the S&P 500 while paying a higher dividend than the average S&P 500 stock. Even today, the stock is a great buy, the kind of stock you can buy and hold for a long, long time.
4. Pulaski Financial Corp. (Nasdaq: PULB)
Pulaski Financial Corp. is a St. Louis-based regional bank. At $144 million, the bank is relatively small. That’s why the purchase of $6.6 million worth of stock by insiders just prior to Lawrence’s article is so significant.
Shares are up by almost 6% since Lawrence’s article, marginally outperforming the S&P 500. But when you consider that the stock’s 3.2% dividend is nearly double the average dividend of S&P 500 stocks, this one has done well. Relative to the performance of the market, you can still buy this stock right around where company insiders bought their shares.
The Bottom Line
As you can see, insider buying isn’t always a sign that a stock is about to move higher. After all, insiders can be wrong about their companies just like outsiders can. What’s more, even when insider buying is an indication of good things to come, it often takes longer than six months for these “good things” to come to investors.
The reality is that meaningful insider buying is generally a good sign that those who know the most about the company believe in the company’s long-term prospects.
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