All major U.S stock indexes fell on Wednesday, marking the third-consecutive day of sharp losses. The falling energy equities primarily stand behind this disappointing performance, which were in turn affected by increased worries about an oversupply in the commodities markets and sluggish global demand. Nevertheless, a group of corporate insiders ignored the overall direction of equities this week and started piling up more shares of their companies. As a general rule, insider buying activity points to insiders’ confidence in their companies’ stock performance and operational performance over the long-term However, insiders tend to buy shares focusing on their own perceptions on how undervalued or overvalued their companies’ stock is, so one should not overlook the fact that these highly-informed individuals may not be infallible in their own assessments. The Insider Monkey team pinned down three companies that witnessed noteworthy insider buying this week and this article will break down those trades and discuss the performance of the companies in question.
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.
Solar Capital Ltd. (NASDAQ:SLRC) has seen one of its top executives buy shares this week. Chairman, President, and Chief Executive Officer Michael S. Gross purchased 22,599 shares this week at prices in the range of $17.18-to-$17.50 per share, lifting his direct ownership stake to 135,794 shares. The management investment company’s business primarily involves investing in U.S middle-market companies. More specifically, Solar Capital Ltd. (NASDAQ:SLRC) invests in leverage middle-market companies via senior secured loans, mezzanine loans and equity securities. As a result, the company’s financial performance mainly depends on the current income and capital appreciation in connection with its debt and equity investments. Solar Capital’s gross investment income for the nine-month period that ended September 30 reached $84.1 million, which was down from $89.0 million reported last year. Nevertheless, its gross investment income for the third quarter increased year-over-year to $30.4 million from $28.4 million. Meanwhile, the shares of Solar Capital are nearly 4% in the red so far this year and are trading at a relatively cheap forward price-to-earnings ratio of 9.99, which is substantially below the average of 17.44 for the S&P 500 companies. Israel Englander’s Millennium Management lifted its stake in Solar Capital Ltd. (NASDAQ:SLRC) by 84% during the September quarter to roughly 363,000 shares.