10 Undervalued Stocks Insiders Are Buying
March 8, 2017
Undervalued Stocks 2017
When it comes to investing, there are many different indicators that are used to evaluate potential investment opportunities. One that is widely used by professional investors is which undervalued stocks insiders are currently buying.
This buying indicator is actually two in one. First, it helps find undervalued stocks—those trading at a discount compared to their industry peers and the overall index—using the price-to-earnings (P/E) ratio. This ratio is calculated by taking the current trading price and dividing it by the annual earnings of the company. The lower the ratio, the better, since it means a lower multiple is being paid for the company’s earnings. An increased ratio requires the stock price going up, which follows earnings growth.
Second, it paints a picture of insiders’ buying activity, namely in regards to whether a company’s management is purchasing shares with their own money. There would only be one real reason for such an event to occur: an insider belief that shares will trade higher over time. These people have a personal interest in a company’s well-being because it impacts their own wealth, meaning they will align their personal interests with that of shareholders; this is seen as a bullish indicator.
Below is a list of the top 10 undervalued stocks that pay a dividend that insiders are buying. By earning a dividend, income is being earned until the market realizes these are undervalued stocks.
List of Undervalued Stocks
| Company Name | Stock Symbol | Price | Dividend Yield | Price-to-Earnings (P/E) Ratio |
| General Motors Company | GM |
$37.50 |
4.02% |
6.32 |
| Virtu Financial Inc | VIRT |
$17.40 |
5.52% |
19.5 |
| Verizon Communications Inc. | VZ |
$50.03 |
4.62% |
15.5 |
| AFLAC Incorporated | AFL |
$72.19 |
2.38% |
11.2 |
| American Express Company | AXP |
$79.50 |
1.61% |
14.1 |
| Tupperware Brands Corporation | TUP |
$61.06 |
4.44% |
13.8 |
| Ford Motor Company | F |
$12.52 |
4.79% |
10.9 |
| Greenhill & Co., Inc. | GHL |
$29.50 |
6.10% |
15.5 |
| Gilead Sciences, Inc. | GILD |
$70.12 |
2.97% |
7.0 |
| Morgan Stanley | MS |
$46.57 |
1.72% |
15.9 |
1. General Motors Company
General Motors Company (NYSE:GM) is based in the U.S., with a presence globally.
GM stock pays a quarterly dividend and has a current dividend yield of 4.02%, based upon the $37.80 trading price.
Other than the dividend, the business is also actively buying back shares. A tax-efficient way of returning money back to stockholders, share repurchases leave each share worth more of the company than they were before due to the fewer total number of shares available. Further, the taxes do not have to be accounted for until the shares are sold.
2. Virtu Financial Inc
Virtu Financial Inc (NASDAQ:VIRT) is a very unique company that operates in the finance and technology environment. Its focus is being a market maker and providing liquidity to the financial markets using technology.
VIRT stock’s current valuation sees it trading cheap when making the comparison to the industry average and the overall index. It currently has a P/E multiple of 19.5 times, which is less than the industry average of 24.3 times. The current ratio for the S&P 500 index is also higher, at 26.6 times.
Over the past five years, Virtu Financial’s revenue has been on an upward slope. Therefore, I believe that investors are simply ignoring the name because it is not a recognized one.
This undervalued stock currently possesses a 5.52% dividend yield.
3. Verizon Communications Inc.
Verizon Communications Inc. (NYSE:VZ) is a blue-chip company and the largest telecommunications business in the U.S.
Telecommunications is a great sector to consider for an investment. VZ stock in particular is known as a cash flow machine, with the majority of earnings paid out in the form of a dividend. Another great aspect of the dividend is that it has grown every year.
Verizon is protected from inflation because as operating expenses increase, they are passed on to customers. The company also doesn’t see many operating costs outside of maintenance. These are reasons why VZ stock has been able—and could potentially continue—to increase its dividend.
4. AFLAC Incorporated
AFLAC Incorporated (NYSE:AFL) is a business that works within the insurance industry.
The company is starting to see its profit margins increase—a trend that seems to be in the early stages. The primary factor is the rise in interest rates, with the return on investment for AFL stock increasing in step with every rise in the benchmark interest rate.
For many years, interest rates in the U.S. were sitting at all-time lows, the U.S. Federal Reserve only starting to increase them in 2015, then again in 2016. And since interest rate are still sitting at near all-time low levels, there is really no direction for them to go except up. Keep in mind that hikes show the Fed has confidence in the economy and a belief that it can handle higher interest rates.
5. American Express Company
American Express Company (NYSE:AXP) stock operates in the financial services area of the credit card market.
AXP stock is in an competitive environment known as an oligopoly. This is an environment that only has a few companies in direct competition.
Looking ahead, it will be difficult for any new business to enter the financial sector due to its high barriers of entry, particularly the large amount of initial capital required.
For investors, this is a great environment to jump into because there is a large protected market share, with revenue that shouldn’t be threatened by new entries.
6. Tupperware Brands Corporation
Tupperware Brands Corporation (NYSE:TUP) is engaged in the manufacturing and sale of food preparation goods, cosmetics, and personal care products.
TUP stock is undervalued, trading at half the evaluation of the S&P 500 index, going by the P/E ratio.
There seems to be a lot of positives to TUP stock, such as continued sales growth and successful new products, leading to dividends and share buybacks. If these positive trends continue, the P/E margin should rise in turn.
All this being said, that insiders have been purchasing shares with their own wealth shows investors why they are bullish on TUP stock.
If you are considering owning shares, you would be purchasing at a discount to the index and would receive a dividend for your time in the investment.
7. Ford Motor Company
With its long history, Ford Motor Company (NYSE:F) needs no introduction.
Since hitting a five-year trading price high in 2013, F stock has been trending lower. But despite this drop, revenue has been continuing to grow annually. I believe investors are not taking the time to research Ford’s financials in order to identify this positive trend
The current P/E margin is 10 times, which is less than half that of the S&P 500. Active buying by insiders provides evidence of their bullish stance on the company, as does the uptrend in revenue.
Until the market realizes that Ford stock is trading a sustainable discount, a 4.79% dividend could be earned. There have been dividend hikes in the past, which could happen again if revenue continues to grow.
8. Greenhill & Co., Inc.
Greenhill & Co., Inc. (NYSE:GHL) is an investment bank that provides financial and advisory services for mergers and acquisitions. Clients include large corporations, institutions, and governments around the world.
GHL stock is trading at $29.50 and offering a current high yield of 6.1%. With any stock that is yielding so high, the concern is if the dividend payment is sustainable. To determine this, look at the dividend payment history. In the case of GHL stock, a dividend payment has not been missed or cut since its start in 2004, and it has been growing since.
9. Gilead Sciences, Inc.
Gilead Sciences, Inc. (NASDAQ:GILD) is a research-based biopharmaceutical company that focuses on discovery, development, and commercialization of medicines.
Gilead has been in business for more than 20 years, but only started rewarding shareholders with a dividend in 2015. GILD stock is considered a dividend growth stock.
There is a high possibility that the dividend can see further growth, as evidenced by the payout ratio of 25%. This is the percentage of earnings is given to shareholders in the form of a dividend.
What makes GILD even more attractive is the valuation. It trades at a P/E multiple of 7.0 times, which is fair below the S&P 500’s 26.6 times.
Ever since GILD stock hits its all-time high back in 2015, the shares have been trending lower. As such, the insider activity has been increasing, with more buy orders of the shares. Further growth should also come from new treatments hitting the shelves.
10. Morgan Stanley
Morgan Stanley (NYSE:MS) is a global financial services company which assists governments, institutions, and individuals.
MS stock is a big beneficiary of interest rates increasing in the U.S. thanks to net interest margins . These margins are used to calculate the interest rate spread between a customer’s outstanding loan and what they are earning on a savings account.
As interest rates increase, this banking metric will rise, benefiting both gross and net income. As such, the stock price should come to trade higher.
