Warren Buffett is one of the best and cheapest fund managers around. He is extremely popular too with more fans than most rock bands in the world, and the press covers his activities on a daily basis. We like Buffett because his stock picks still generate alpha even though some of them were acquired decades ago.
Corporate insiders are great too; they have access to nonpublic information and understand their companies better than most investors. Academic studies have shown that stocks bought by several insiders outperformed the market by an average of 7 percentage points per year.
In this article we will take a look at three stocks that are both in Berkshire’s Q1 equity portfolio, and have seen at least two insider buys this year.
The Coca-Cola Company (NYSE:KO), Buffett’s second largest holding, comprises more than 14% of his 13F portfolio. Over the first quarter of 2014, five insiders acquired the company’s stock, spending almost $1 million.
Between late February and early March this year, Muhtar Kent, Chairman and CEO; Alexander J. Douglas Jr., Senior Vice President; and three Board Directors, bought a total of 25,066 shares of The Coca-Cola Company (NYSE:KO), for prices ranging from $37.25 per share to $38.76 per share. The stock is currently trading above $40 per share. Coca-Cola (needless to say, a safe investment) trades around industry average valuations, at 21.6 times the company’s earnings. Meanwhile, the company boasts above average margins and returns on equity and assets, and yields about 3% of the current stock price in the form of dividends. This is why analysts, insiders and hedge funds (including Berkshire) love this stock. Other major funds betting on The Coca-Cola Company (NYSE:KO) are Donald Yacktman’s Yacktman Asset Management and Bill Gates‘ foundation.
The second company in this list is General Electric Company (NYSE:GE), the $266 billion market cap diversified technology, industrials and financial services company. Berkshire is one of the largest General Electric Company (NYSE:GE) shareholder. Quant hedge fund D E Shaw and billionaire Ken Fisher have bigger positions in the stock.
Three insiders acquired shares of General Electric Company (NYSE:GE) over the first quarter. All of the transactions took place in late January, surrounding a steep drop in the company’s stock price, which started the year trading above $28 per share. Jeffrey Immelt, Chairman and CEO, bought at the lowest price amongst all insiders; On Jan. 27th, he acquired 40,000 shares for $25.04 each, and now owns 1,857,677 shares of the company. Two other insiders have also acquired General Electric Company (NYSE:GE)’s stock around the same time, spending a combined total of more than $350,000.
Once again, the purchases make sense; GE offers a secure investment at a below-average valuation (18.7 times its earnings, versus an industry average of 20.9 times), which also yields 3.31% in the form of dividends, and constantly seeks to return cash to investors.
The third stock in our portfolio is Phillips 66 (NYSE:PSX), a $46 billion market cap downstream energy company. Although two insiders bought its stock since the beginning of the year, spending about $2 million, Buffett cut his exposure by 64% over Q1. Nonetheless, his 9.74 million shares, worth more than $750 million, are not to be overlooked; Buffett still has one of the largest position in the stock, trailed by D. E. Shaw, who owns 7.56 million shares (about $580 million in stock), and Steven Richman, who holds 3.36 million shares. Larry Robbins, George Soros, and Michael Novogratz are among Phillips 66 (NYSE:PSX) shareholders too.
Phillips 66 is also a decent dividend stock (2.44% yield) with upside potential. In addition, several analysts have recognized Phillips 66 (NYSE:PSX) as a dividend growth stock, not only in the past, but also going forward. Its growth plans of doubling the enterprise value over the next five years seem quite on track, and should help sustain dividend growth in time.