According to a Form 4 filed with the SEC, Pall Corporation (NYSE:PLL) Board member Craig Owens directly purchased close to 3,000 shares of the company’s stock on March 4th at an average price of about $67.82 per share. He now owns almost 5,000 shares of the stock, meaning that this purchase more than doubled his stake in the company. Pall is a $7.6 billion market cap manufacturer of laboratory and industrial equipment. In addition to our work on hedge fund investing strategies (for example, we have found that the most popular small cap stocks among hedge funds outperform the market by an annual average of 18 percentage points), we track insider trading activity because studies show that stocks bought by insiders have a small outperformance effect on average (learn more about studies on insider trading). We think that this is because buying the stock violates the principles of diversification and so that insiders should tend to choose to do so when the company has good prospects.
The second quarter of Pall’s fiscal year ended in January, with the company experiencing a 4% increase in revenue compared to the same period in the previous fiscal year. Because of a loss from discontinued operations (earnings from continuing operations, conversely, were up 8%), net income declined from its levels a year earlier. So we would say that the results look mixed to slightly positive since Pall Corporation is improving its net income from current operations.
At the current market capitalization Pall Corporation trades at 14 times trailing earnings, though this seems to include an abnormal gain from discontinued operations in the first quarter of the current fiscal year. Analyst expectations are for $3.56 in EPS for the fiscal year ending in July 2014, which makes for a forward P/E of 19. That pricing seems a bit high for a company with such modest growth rates.
Robert Caruso’s Select Equity Group increased its holdings of Pall by 17% between October and December, and had 2.7 million shares in its portfolio at the end of 2012 (see Caruso’s stock picks). Renaissance Technologies, whose founder Jim Simons is now a billionaire, also bought shares and closed the fourth quarter of last year with a position of about 610,000 shares (find Renaissance’s favorite stocks). However, hedge fund interest in the company was not very broad: only these two funds and Columbus Circle Investors had over $10 million invested in the stock.
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