Both insider buying and selling activity weakened last week relative to the previous one, as U.S equity markets had a holiday-shortened session on Friday after being closed on Thursday for the Thanksgiving holiday. The volume of insider buying halved week-over-week, while the volume of insider selling slightly diminished over the same period. As a result, last week’s ratio of insider selling over insider buying increased significantly relative to the prior one. Insider buying activity is generally perceived as a bullish sign, as it points to insiders’ confidence in the future performance of their companies. For that reason, this article will disclose and discuss the insider buying activity registered at three companies and will attempt to pinpoint specific firm-related developments that might have propelled insiders to purchase shares.
Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35%-to-45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 102% over the ensuing 38 months, outperforming the S&P 500 Index by more than 53 percentage points (read more details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
Universal Insurance Holdings Inc. (NYSE:UVE) had three different insiders acquire stock last week. To start with, Secretary and Chief Administrative Officer Stephen J. Donaghy snapped up 19,705 shares on Wednesday for $20.30 each, boosting his overall holdings to 459,242 shares. Frank Wilcox, Chief Financial Officer and Principal Accounting Officer since October 2013, purchased 2,300 shares on Tuesday at $21.23 apiece and currently holds 94,324 shares. Last but not least, Director Michael A. Pietrangelo bought 2,000 shares on the same day at a weighted average price of $20.26, lifting his stake to 61,248 shares.
The shares of the vertically integrated insurance holding company plummeted by 31% on November 17 after Anthony Bozza of Lakewood Capital Management pitched the company as a short opportunity at the Robin Hood Investor’s Conference. Universal Insurance Holdings Inc. (NYSE:UVE)’s stock was up by 46% for the year through November 16 and is now 1% in the red year-to-date. It is also worth pointing out that the stock is trading at an eye-catching trailing price-to-earnings ratio of 7.38, which is significantly below the average of 23.18 for the S&P 500 benchmark. Meanwhile, 18 hedge funds from our database were invested in the company at the end of the third quarter, stockpiling a mere 5.60% of the company’s outstanding shares. Ron Bobman’s Capital Returns Management owns 262,077 Universal Insurance shares as of September 30.