When insiders buy shares on the open market, their companies could enjoy bullish times ahead. Corporate insiders often have the inside track on their companies' prospects, and often have significant exposure to the company's stock through options or restricted shares that are part of their compensation. Besides, insiders probably wouldn't risk plowing too much of their own money into their own company's stock -- reducing their portfolio's diversity, and increasing its risk -- unless they thought the stock will rise.
With that in mind, I screened for companies where at least one insider made an open-market buy in the last 30 days. These three food, beverage, and tobacco stocks made the list:
Net Number of Buys
No. of Shares Bought
Market Cap (in millions)
Brown-Forman (NYS: BF.B)
Molson Coors Brewing (NYS: TAP)
Lorillard (NYS: LO)
Source: Capital IQ, a division of Standard & Poor's, as of August 10, 2011.
When it comes to the number and total value of insider open-market buys, more can be better; I've sorted this table accordingly. Insiders at Brown-Forman made an open-market purchase worth $224,000, while two insider buys at Lorillard were worth a less head-turning $51,000.
Both are bullish signs, but the purchase of Brown Forman -- which has a far better five-year net income CAGR than competitorsFortune Brands (NYS: FO) , Constellation Brands (NYS: STZ) , and Diageo (NYS: DEO) -- looks more promising. Lorillard reported an 18% increase in earnings per share recently, but warned that it expects a weak third quarter as wholesalers work down excess inventory. The company also faces an intermediate-term threat that the FDA may restrict menthol cigarettes.
Insider buying signals that someone who should be in the know is betting that the stock will rise. You can use this list of recent insider purchases as a starting point for further research -- or a good reason to make a contrarian play.
Are these insiders right? To help you find out, the Motley Fool recently introduced a free My Watchlist feature. You can get up-to-date news and analysis by adding companies to your Watchlist now:
At the time thisarticle was published Fool contributorCindy Johnsoncurrently owns shares of Lorillard. The Motley Fool owns shares of Fortune Brands, Diageo, and Molson Coors. Motley Fool newsletter services have recommended buying shares of Diageo, Fortune Brands, and Molson Coors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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