What are we looking for?
Stocks trading at cheap valuations relative to the S&P 500 index – and where executives are increasing their share of ownership.
The screen
Our approach is based on the insider investment strategy that tracks buying and selling activity by company insiders. This strategy is based on the premise that executives have considerable experience and understanding of industry cyclical trends, with a better grasp on industry fundamentals than others, resulting in better insight into their company's outlook. Sustained share purchases by insiders might indicate their confidence in the company's future.
We look for companies:
- trading at price-to-earnings (P/E) and price-earnings-to-growth (PEG) multiples lower than the main index; the S&P 500’s P/E and PEG are 18 and 1.8, respectively. (PEG is P/E divided by the expected earnings growth rate over the next 12 months.);
- trading at a significant discount (greater than 10 per cent) to the average analyst price target;
- at which insiders have been consistently buying shares over the past 24 months;
- with an insider-net-buyer ratio greater than 80: This percentile ratio compares the number of net insider buyers and sellers relative with the total number of insiders, while adjusting these inputs to emphasize transactions from the last 90 days.
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What did we find?
Our screen yields 10 companies of varying market caps, mainly across financials and health care. Citigroup Inc. stands out with the largest market cap, lowest P/E and PEG and tops the list in discount to analyst target price. Management has shown commitment to their firm through consistent buying activity. The company is currently in the midst of a turnaround stage, streamlining operations while maintaining a broad set of product offerings and a global presence across Asia, Latin America and North America.
This commentary does not provide individualized advice or recommendations. Investors should conduct further research before investing.
Khaled Eniba works in the financial and risk unit of Thomson Reuters and specializes in banking and research.