Should investors follow the lead of Executives, Directors and others with inside information of the company, when they are buying and selling shares of the company? The response comes as an affirmative ‘Yes’ from Founder and Editor of Insider Monkey, Meena Krishnamsetty, who has figured that insider trading can significantly show the direction of the stock. During an appearance on Fox Business, Krishnamsetty highlighted that how companies with multiple insider purchases outperform the market by an average of 7% per year.
On Hedge Funds Radar
As Krishnamsetty details out the three companies, which are under the insiders favorite radar, she says that another major indication to look at, are the holdings of the hedge funds, who generally have a 10% stake in the stock. Krishnamsetty said,
“What we have found out is that there are lots of insider information, and it’s only illegal when you knowingly trade when the information is non-public, and it’s a tough thing to prosecute.”
Three Insider Favorites
Among the three picks, Krishnamsetty starts with the Citigroup Inc (NYSE:C) saying
“It is not surprising that Citigroup is among the third largest stock held by the hedge funds.”
It is to be noted that two of the insiders of Citigroup Inc (NYSE:C) have spent over $1.54 million this year in buying this stock. Moreover, Krishnamsetty highlights that
“hedge funds with massive resources to do research have said that Citigroup Inc (NYSE:C) is a great ‘buy’, therefore, it should not be surprising, why the insiders are buying?”
Another stock is Phillips 66 (NYSE:PSX), which has seen buying from two of its directors. The total stock bought by the two directors totals 11,807 shares. Moreover, it is not just the insiders of Phillips 66 (NYSE:PSX), but the hedge fund, D.E. Shaw has also raised its stake in the company by 9% during the first quarter of the year. Krishnamsetty said that the stock has done pretty well since its spin off two years ago and with the insider activity happening, Phillips 66 (NYSE:PSX) could be a good bet.
Finally, Krishnamsetty pointed at Emerson Electric Co. (NYSE:EMR), where the Board of Directors of the company has bought 7,445 shares in May and the stock records other buying activity of 3,000 shares. In addition to this, Emerson Electric Co. (NYSE:EMR) has also been bought by some of the prominent hedge funds, thus, could be considered as a good buy.
Other than that, Krishnamsetty explained that Insider Monkey uses extensive coding and programming to analyze and process the tremendous amount of data, while she concludes that their strategy has returned nearly 90% since inception.
Seth Klarman‘s hedge fund Baupost Group holds a massive 104.25 million shares of Citigroup Inc (NYSE:C). Toscafund Asset Management, run by Martin Hughes, has 36.39% of its equity portfolio invested in Citigroup Inc, comprising of 4.89 million shares. Warren Buffett‘s Berkshire Hathaway, holds 9.74 million shares of Phillips 66 (NYSE:PSX), with a reported value of $750.66 million.
Adage Capital Management, led by Phill Gross and Robert Atchinson raised its stake by 1846% in Emerson Electric Co. (NYSE:EMR), in the first quarter of 2014, and currently holds 1.19 million shares worth $79.63 million.