- These three stocks with notable insider buying by management may be a sign of better financial results in the near future, suggesting upside potential.
- Charles Schwab (SCHW): Soaring net interest revenue through the year is expected to compensate for disappointing Q1 results.
- General Electric (GE): In Q1, the aviation segment saw orders and revenue increase by double digits.
- Hasbro (HAS): The toymaker raised full-year guidance despite a 70% year-over-year decline in Q1 free cash flow.
Legal insider buying happens when senior executives of the company, with material nonpublic information, purchase or sell stocks, but they disclose their transactions promptly, as required by law. The U.S. Securities and Exchange Commission (SEC) says that “an ‘insider’ is an officer, director, 10% stockholder and anyone who possesses inside information.”
Wall Street pays close attention to publicly-disclosed information on both insider selling and buying, as such transactions could give a snapshot of the mood within a company. While there may be many reasons for insider selling, insider buying conveys sentiment at the executive level that the company is possibly doing well. For example, executives buying stocks may be confident that earnings will grow in the near future.
According to a report by Verity, unique insider buyers in the first quarter declined sequentially to 1,606 but increased from 1,099 in the prior-year quarter. The analysis suggests that insiders aren’t necessarily lining up to buy the dip, waiting for more favorable conditions.
Therefore, potential investors need to analyze different sides of the equation when they research companies where there is publicly-disclosed insider buying of the stock.
With that information, here are three stocks with notable legal insider buying that may suggest significant upside in the coming months.
Charles Schwab (SCHW)
Our first legal insider buying stock is Charles Schwab (NYSE:SCHW). It provides a wide range of financial services, including securities brokerage, asset management and banking.
Charles Schwab released Q1 results on April 18. Revenue fell 1% year-over-year (YOY) to $4.67 billion. Adjusted earnings per share (EPS) came in at 77 cents, down 8% YOY from 84 cents.
The company ended the first quarter with 33.6 million active brokerage accounts and $7.86 trillion in client assets, up 5% and 11% YOY, respectively. In addition, interest revenue increased by more than $300 million on a YOY basis, compensating for the $250 million drop in trading revenue.
While the Q1 earnings miss caught investors by surprise, the company should still benefit from rising interest rates through 2022. Net interest revenue constitutes around 49% of Schwab’s total revenue.
SCHW stock has declined 20% year-to-date (YTD). Shares are trading at 18 times forward earnings and seven times trailing sales. Meanwhile, the 12-month median price forecast for Charles Schwab stock stands at $98.
General Electric (GE)
Next up is General Electric (NYSE:GE), the global behemoth in air travel, precision health and the renewable energy transition. The company is well-known for its differentiated technology and industrial equipment.
GE announced Q1 results on April 26. Revenue remained flat at $17 billion. Adjusted EPS came in at 24 cents compared to 13 cents a year ago. The company burned $880 million in free cash flow during the quarter.
The aviation segment saw orders and revenue increase by 31% and 12% respectively. As the pandemic wanes, we’re witnessing a broad-based recovery in the operations of airlines, which means increased sales for GE. In fact, the segment accounted for over one-third of the total revenue.
Yet Boeing’s current struggle in building planes constitutes a major headwind in the short term, as GE’s jet engine business relies heavily on Boeing’s (NYSE:BA) performance.
On the results, CEO Larry Culp said, “…as we continue to work through inflation and other evolving pressures, we’re currently trending toward the low end of the [guidance] range.”
Along with many widely-held shares, GE stock has dropped 18% YTD. It is now changing hands at 24 times forward earnings and 1.1 times trailing sales. At present, the 12-month median price forecast for General Electric stock is $108.
Our last legal insider buying stock is Hasbro (NASDAQ:HAS), the well-known play and entertainment company. It offers toys, games, television programming and motion pictures to children and families worldwide. And the portfolio includes well-known global brands such as Transformers, Nerf and Monopoly.
Hasbro issued Q1 results on April 19. The company missed analyst targets for earnings by a substantial margin. Revenue grew 4% YOY to $1.16 billion. But operating profit declined 19% YOY. Adjusted net earnings came in at 57 cents per diluted share, down from $1 per diluted share a year ago. Cash and equivalents ended the period at $1.06 billion.
Net cash provided by operating activities also dropped 64% YOY to $135 million. However, management raised its full-year guidance despite disappointing results, projecting a 4% increase in adjusted operating profit margin to 16%.
HAS stock has lost 10% YTD. Shares are trading at 17 times forward earnings and 1.9 times current sales. Finally, the 12-month median price forecast for Hasbro stock stands at $113.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.