We can’t always predict what Warren Buffett is going to buy, and when the legendary investor announces some big stock purchase, everyone rushes in and any value there might have been tends to vanish.
The great thing about insider buying, however, is that there’s little better than recent insider buying as a vote of confidence in a stock.
Even better, insider buying is announced to the public very quickly after it happens. That means if you are paying attention, you can probably grab these stocks to buy at or near the same price as the insiders.
I can’t emphasize enough that insider buying is significant for investors to note. Think about it. If you freely choose to use your own considerable wealth to buy stock in your own company, you have to believe that your risk-reward ratio is better than any other investment.
So let’s take a look at the 3 best stocks to buy because of insider buying.
Apollo Investment Corporation (AINV)
Apollo Investment Corporation (AINV) is a business development company that plays in an area close to my heart: loans made to fast-growing businesses.
Business development companies like Apollo have a lot of leverage over the companies they loan to because those companies have generally exhausted their capital and need an influx to really turbocharge growth and remain a dividend stock.
AINV stock makes both secured and unsecured loans, sometimes at the senior level and other times at the mezzanine level, earning mid-teen percentage on their debt, and often taking warrants or preferred stock as well.
Three directors and the CFO made insider purchases in May and June, totaling about 11,400 shares between $8.34 and $8.48. The stock is trading at $8.37, so you can buy in at around the same price.
Boston Private Financial Holdings (BPFH)
Boston Private Financial Holdings (BPFH) isn’t a name I was familiar with until writing this article, but I like what I see. This is a fairly seasoned operator in banking, handling all the financial services for individuals, corporations, institutions and fiduciaries that you’d expect of a large bank.
It holds about $6.4 billion in assets and more than $5 billion in deposits.
In late July, a director made quite a purchase — 15,000 shares at $12.66, for a total of $189,963. That’s not a small sum, and when you see that kind of money dropped into a stock, you have to figure that no matter how rich this guy is, he’s not going to drop 200K into a dud.
The stock sits today at $12.63, so it seems like a good time to join this director for a ride.
Bemis Company (BMS)
Bemis Company (BMS) is another of these stocks I’ve never heard of, but what could be more boring (and therefore all the more interesting) than a company that deals in packaging products and, as they say, “pressure sensitive materials.” I hope that means bubble wrap.
BMS stock has a nice business going, despite pretty heavy competition. It generates very reliable cash flow in the $250 million to $300 million annual range, and pays out about $100 million each year in dividends.
That kind of reliability may be why one director purchased 2,000 shares, dropping about 80 grand into the stock earlier this month.
It’s worth looking into, as the stock trades at 18x estimates compared to 20x for the industry. BMS stock’s return on equity is about 14%, which places it well above the industry median of 8.4%.
So while its net margins aren’t massive, running in the mid-4% range, this is a solid little business that pays reliable dividends.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets at @ichabodscranium.