Numerous research papers studying insider trading behavior conclude that companies in which corporate insiders have bought shares tend to outperform stock market benchmarks. For instance, a research study showed that insider purchases generate abnormal returns of more than 50 basis points per month by constructing a so-called “purchase portfolio” that holds all shares purchased by insiders for a six-month period.
More importantly, past research finds that the intensity of insiders’ purchases over certain periods can point to attractive investment opportunities. This essentially means that intense insider buying can be used as a buying signal. In other words, retail investors tracking insider trading metrics should mostly focus on identifying clusters of insider buying, as there is strong evidence suggesting that corporate insiders have a good feel for near-term developments within their firms and their respective industries. Without further ado, let’s discuss several noteworthy insider purchases and sales reported with the SEC on Wednesday.
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 imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
Cruise Operator’s CEO Piles Up Shares After Lowering Profit Guidance
According to our insider trading database, Royal Caribbean Cruises Ltd (NYSE:RCL) did not have any insider buying activity since mid-2014, until this week. Chairman and Chief Executive Officer Richard D. Fain snapped up 29,190 shares on Wednesday at prices ranging from a low of $67.05 to a high of $69.63 per share. After the purchase, Mr. Fain currently owns a direct ownership stake of 1.07 million shares.
The global cruise company has lost 32% of its market value since the beginning of the year. The recent insider buying comes shortly after Royal Caribbean Cruises Ltd (NYSE:RCL) lowered its full-year earnings outlook amid higher fuel prices and foreign exchange headwinds. Precisely, the cruise operator lowered its earnings per share forecast to $6.00-to-$6.10 from the previous projection of $6.15-to-$6.35. The cut mainly reflects an adjustment related to the depreciation of the pound after the United Kingdom decided to leave the European Union. The company’s second quarter top-line rose by 2.3% year-over-year to $2.11 billion. Connecticut-based Columbus Circle Investors trimmed its position in Royal Caribbean Cruises Ltd (NYSE:RCL) by 27% during the June quarter, to 1.38 million shares.
The second page of the article will list two companies that recently witnessed noteworthy insider buying, while the final page of the article will disclose two companies with recent notable insider selling activity.