Academic research has shown that corporate insiders have an edge over ordinary investors, especially when it comes to purchasing stocks. Even small insider purchases are marginally profitable. On the other hand, insider sales have not outperformed the market historically. The reason is simple: insider sales are often motivated by diversification or liquidity needs, but insider purchases are not. Insiders usually have a lot of exposure to their company's performance. It does not make sense for them to increase their exposure, unless they know that their purchases have a high probability of being profitable.
Below, we have compiled a list of industrial goods stocks insiders are bullish about. All the companies have at least $2 billion market cap and were purchased by at least one insider during the past three months. The market data is sourced from Finviz.
Ticker | Company | Insiders |
TEX | Terex Corp. | 9 |
FLS | Flowserve Corp. | 2 |
MDU | MDU Resources Group Inc. | 2 |
WWD | Woodward, Inc. | 2 |
BA | Boeing Co. | 1 |
BWC | The Babcock & Wilcox Company | 1 |
ETN | Eaton Corporation | 1 |
FAST | Fastenal Company | 1 |
HON | Honeywell International Inc. | 1 |
NOC | Northrop Grumman Corporation | 1 |
RBC | Regal Beloit Corporation | 1 |
RSG | Republic Services, Inc. | 1 |
XYL | Xylem Inc. | 1 |
Terex Corp (TEX) was purchased by 9 insiders over the past three months. On January 11, Philip Widman, Kenneth Lousberg, and seven other insiders at TEX, bought hundreds of the company's shares at $15.82 or $16.31 per share. These nine insiders also bought hundreds of TEX shares in early December and in early November at about $17 per share. Currently, TEX is trading at $22.81 per share. The Street thinks these insider purchases are significant. TEX has returned more than 40% since January 11, versus 4% for SPY.
Terex is a diversified global equipment manufacturer of a variety of machinery products. We like TEX. Though the company's business was not robust due to the weak global economy, it has been recovering over the past year and getting better. The company has great potential in the emerging markets. We are optimistic about the company's future and believe it will continue growing over the next few years. We think its strengths offset its weaknesses, such as its small scale compared with its big competitors.
According to Credit Suisse, TEX has a target price of $53 per share, versus its current price of only $22.81. At the end of the third quarter, there were 14 hedge funds with TEX positions. For instance, Steven Cohen's SAC Capital Advisors had $14.5 million invested in TEX. Israel Englander and Jim Simons' Renaissance Technologies are also bullish about TEX.
Flowserve Corp (FLS) was also purchased by more than one insider during the past three months. It was bought by two insiders in November. Thoma Pajonas purchased 2,654 shares of FLS at $94.88 per share on November 9. Director Mark Blinn also bought 4,600 shares at $91.17 and another 2,400 shares at $91.80 at the beginning of November. FLS is now trading at $114.43, up 21% since November 9. During the same period, the market was up less than 10%. FLS has a market cap of $6B and a P/E ratio of 14.72. Flowserve is a manufacturer and aftermarket service provider of flow control systems. At the end of the third quarter, there were 15 hedge funds with FLS positions. For example, George Soros' Soros Fund Management had $2.7 million invested in FLS at the end of September.
MDU Resources Group Inc (MDU) and Woodward Inc (WWD) were also purchased by two insiders over the past three months. However, the insider purchases of both stocks were relatively small compared with those of FLS. Insiders bought nearly 10,000 FLS shares in total over the past three months, while they purchased about 5,000 MDU shares and 4,000 WWD shares. In November, William Connors purchased 3,136 shares of MDU at about $20.40, while Doran Schwartz bought 2,000 shares of the company at about $20 per share. In the case of WWD, while John Cohn bought 1,500 shares at $37.9707 on November 22, Mary Petrovich purchased 2,615 shares at $40.876 in early December. WWD is currently trading above $44, and MDU is up 8% since Doran Schwartz's purchase.
Other large-cap industrial goods stocks insiders are buying include Boeing Co (BA), Eaton Corporation (ETN), Fastenal Company (FAST), Honeywell International Inc (HON), Northrop Grumman Corporation (NOC), and Republic Services Inc (RSG). These stocks were only purchased by one insider over the past three months, which is usually not significant enough signal for a closer look. However, we will be tracking these stocks closely and will report additional insider purchases.
Overall, we like imitating corporate insiders. Our past studies have shown that insider purchases on average outperform the market over the next 12-month period. We believe that investors will be more likely to beat the market in the long term simply by buying stocks that are favored by several corporate insiders.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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