Warren Buffett and Insiders are Betting On General Motors Company (GM) & More

Quarterly filings from Warren Buffett’s Berkshire Hathaway are highly anticipated in the financial community- many investors and market watchers are at least somewhat curious what Buffett has been doing, and may find some of his picks to be interesting initial ideas. We track Berkshire’s filings over time, alongside with those of hundreds of other notable investors including hedge funds, as part of our work developing investment strategies. Our research shows that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio following this strategy outperformed the S&P 500 by 33 percentage points in the last 11 months.

We can refine Buffett’s picks further by looking for stocks which have seen recent insider purchases, as stocks bought by insiders tend to narrowly outperform the market on average (read our analysis of studies on insider trading). This serves as a good screen for stocks which investors may find to be good values. Read on for our quick take on four stocks in Berkshire’s portfolio (see Buffett's picks over time) which at least one company insider has bought since the beginning of April:

Leading our list is General Motors Company (NYSE:GM); an insider was buying the automaker in May, and during Q2 Buffett increased his holdings by 60% to more than $1 billion worth of its stock. General Motors Company (NYSE:GM) has struggled recently, with earnings declining by over 20% last quarter compared to the second quarter of 2012. Bulls argue that U.S. consumers have pent-up demand for autos, as their cars are old by historical standards, and that Europe will recover over the next few years. Wall Street analysts, in line with this optimism, are forecasting enough earnings per share going forward that General Motors Company (NYSE:GM) trades at 8 times forward earnings estimates and at a five-year PEG ratio well below 1. General Motors Company (NYSE:GM) was the fourth most popular stock among hedge funds last quarter (check out the full top ten list).

Berkshire was also adding shares of National-Oilwell Varco, Inc. (NYSE:NOV) last quarter, and we had also recorded an insider purchase at the $31 billion market cap oilfield equipment and services company. Higher costs have offset revenue growth at National Oilwell Varco, and as a result profits have declined from their levels a year ago. The stock has also slipped (against a rising market) as a result.

Warren Buffett

The sell-side is forecasting a weak recovery for the business, resulting in both trailing and forward P/Es in the 12-13 range. Billionaire Richard Chilton’s Chilton Investment Company reported a position of about 950,000 shares in National Oilwell Varco in its own 13F (find Chilton's favorite stocks).

Chicago Bridge & Iron Company N.V. (NYSE:CBI) had been Buffett’s largest new pick in the first quarter of the year, and then a company officer had bought 10,000 shares of stock in mid July. The company designs and builds energy infrastructure facilities, potentially including the buildout of liquefied natural gas terminals and processing plants set to occur as the commodity is exported from the U.S. Analysts see this as a potential boom for Chicago Bridge & Iron, and as a result earnings are expected to increase to the point that the forward earnings multiple is 12 and the five-year PEG ratio is 0.6. D.E. Shaw, managed by billionaire David Shaw, owned 1.6 million shares at the beginning of July (research more stocks D.E. Shaw likes).

In this past month Verisign, Inc. (NASDAQ:VRSN) has seen an insider buy shares; Berkshire increased its stake in the Internet registry services company to a total of nearly 11 million shares between April and June. Verisign’s stock price had plunged last fall after regulators objected to the company’s price increases, but the shares have since recovered a bit and are now up slightly from their levels a year ago. Recent results show double-digit growth rates in both sales and net income, though some degree of growth is already priced in with a trailing P/E of 23. Billionaire Stephen Mandel’s Lone Pine Capital has been another significant shareholder in Verisign (see more stocks from Mandel's portfolio).

Disclosure: I own no shares of any stocks mentioned in this article.

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