Insider trades can provide additional information about where the company’s management or large shareholders (those having larger than 10% stake in the company) see the share price heading. While there is always some degree of uncertainty surrounding the real motives behind these transactions, it is still helpful to keep a track of them. With this in mind we came up with the list of most notable such trades in the last couple of days. Insiders at Abercrombie & Fitch Co. (NYSE:ANF), Anacor Pharmaceuticals Inc (NASDAQ:ANAC) and Civeo Corp (NYSE:CVEO) made significant moves.
Most investors can’t outperform the market by individually picking stocks because stock returns aren’t normally distributed. A randomly picked stock has only 35% to 45% (depending on the investment horizon) chance to outperform the market. There are a few exceptions. One exception is the purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of 7 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 have shown that the 15 most popualr 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. These stocks managed to return more than 132% over the ensuing 2.5 years and outperformed the S&P 500 Index by nearly 80 percentage points (read the details here). The trick is focusing on the small-cap stocks, not the large-cap stocks which are extensively covered by analysts and followed by almost everybody. Following insider transactions and hedge fund purchases makes sense only when there are limited information available about the stocks that they are buying.
Moving on to the first insider trade which involved Bonnie Brooks, a director at Abercrombie & Fitch Co. (NYSE:ANF). Brooks acquired 1,000 shares at $22.69 per share and 1,200 shares at $22.56 to put her total holding at 2,200 shares. She was appointed as director last year after management shakeup demands from activist investor Engaged Capital LLC. Abercrombie & Fitch Co. (NYSE:ANF) is down by nearly 42% over the last 52 weeks amid disappointing financial results. In contrast its apparel and accessories retailers industry is up by 12% over the same period. The company’s founder & CEO Michael Jeffries stepped down late last year, but that still hasn’t solved all its problems. The only interesting feature about the stock right now is its 3.62% dividend yield, but given the weakening business the yield comes with a significant risk.
Among the hedge funds that we track, 28 had investments totalling $323.88 million at the end of the fourth quarter as compared to 30 funds with $342.98 million in the previous quarter. Joel Greenblatt’s Gotham Asset Management held some 2.87 million shares valued at $82.16 million.
Anacor Pharmaceuticals Inc (NASDAQ:ANAC)‘s Executive Vice President and CFO, M. Geoffrey Parker also added some 3,000 shares of the $2.27 billion biopharmaceutical company to his holding of 173,000 shares. Parker also directly owns 94,840 shares with his wife, Jill Gofen Parker through Geoffrey M Parker and Jill G Parker Revocable Trust. Parker’s indirect stake in the company amounts to another 10,000 shares held through Delaware Charter Guarantee & Trust Company, which is a Trustee of Mr. Geoffrey Monroe Parker IRA.