(By Rebecca Lipman. Insider data sourced from Insider Moneky.)
There is a long-standing belief that we should all try to imitate smart and successful investors. When an established investor buys a stock, we buy it too. When they sell, we sell. The same can also be said of insider buying, after all, who knows their company better?
Academic studies reported by Insider Monkey show "firms with extensive insider purchases beat firms with extensive insider sales by 7.8% during the following 12 months." The study also found that the "stock market increased an average 21.2% during the following 12 months when insiders were most optimistic… When the net purchase ratio was in the bottom quintile, that meant insiders were the most pessimistic… the stock market returned an average 8.1% during the following 12 month period."
In light of this report, MarketWatch has conducted an interesting analysis of insider buying and the success of big-name funds.
MarketWatch chose to work with the holdings of Leon Cooperman (pictured left), a self-made billionaire, fund manager and finance guru who told CNBC that he was extremely bullish on the stock market. He points out that more than half the stocks on the S&P 500 index have higher dividend yields than 10-year bonds.
Using holdings data, MarketWatch compiled a list of stocks that both Cooperman and insiders love. Cooperman has at least $30 million invested in each of the companies. We list them with relevant data below.
MarketWatch believes "these nine stocks are likely to beat the market by several percentage points over the next 12 months." Cooperman and insiders think so too. What do you think?
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1. Linn Energy (LINE): Linn Energy, LLC is an independent oil and gas company focused on the development and acquisition of long-lived properties which complement its asset profile in producing basins within the United States. Its goal is to provide stability and growth in distributions to unitholders through a combination of continued successful drilling and acquisitions. Cooperman's largest position with $159 million invested. "Three LINE insiders paid as little as $32 and spent more than $1 million on 39,000 shares in early August."
2. KRK Financial (KFN): It is a diversified specialty finance company that invests across multiple asset classes, including residential mortgage loans and mortgage-backed securities, corporate loans and debt securities, commercial real estate loans and debt securities, and asset-backed securities. Cooperman has $151 million invested. Two unique insiders have purchased shares since March.
3. Energy XXI LTD (EXXI): Energy XXI (Bermuda) Limited, together with its subsidiaries, engages in the acquisition, exploration, development, production, and operation of oil and natural gas properties onshore in Louisiana and Texas, and offshore in the Gulf of Mexico. Cooperman has $122.2 million invested. Seven unique insiders have purchased shares since March.
4. General Motors CO (GM): General Motors Company is engaged in the designing, manufacturing and retailing of vehicles globally including passenger cars, crossover vehicles, and light trucks, sport utility vehicles, vans and other vehicles. Cooperman has $118.3 million invested. According to MarketWatch, GM "has one of the biggest numbers of insider purchases since March. Seven insiders bought the stock since then. Cooperman increased his position in GM by 22% during the second quarter."
5. E Trade Financial (ETFC): The E*TRADE Financial family of companies provide financial services including brokerage, banking and lending for retail, corporate and institutional customers. Cooperman has $103.2 million invested. Two unique insiders have purchased since March collectively paying nearly $202,800.
6. JPMorgan Chase (JPM): J.P. Morgan Chase & Co. is a leading global financial services firm. The firm is a leader in investment banking, asset management, private banking, private equity, custody and transaction services and retail and middle market financial services. Cooperman has $77.1 million invested. Three unique insiders have purchased shares since March. According to MarketWatch, "insiders also paid well above JPM's current price of $32.25. The debt crisis in Europe is the major obstacle for banking stocks at the moment. We believe that globally, banking stocks are undervalued based on insider holdings. Most of them are trading at very low multiples. However, it might be better to wait for the fallout of Greece's eventual default."
7. Boston Scientific Corp (BSX): Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of minimally invasive medical devices. The company's products are used in a broad range of interventional medical specialties, including cardiology, electrophysiology, gastroenterology, neuro-endovascular therapy, pulmonary medicine, radiology, urology and vascular surgery. Cooperman has $62 million invested. Two unique insiders have purchased since March collectively paying around $970,230. http://www.insidermonkey.com/company/boston+scientific+corp/885725/buys/
8. Ford Motor Co (F): Ford Motor Company produces cars and trucks. The company and its subsidiaries also engage in other businesses, including manufacturing automotive components and systems and financing and renting vehicles and equipment. Cooperman has $58.4 million invested. Two unique insiders have purchased since March, collectively paying around $400,000.
9. MGIC Investment (MTG): MGIC Investment Corporation is a holding company which, through its wholly owned subsidiary, Mortgage Guaranty Insurance Corporation, is the leading provider of private mortgage insurance coverage in the United States to the home mortgage lending industry. Cooperman has $31.9 million invested. Six unique insiders have purchased since March.