If you’re looking for good investment ideas in the current highly-volatile market, which has battered many stocks in its wake, monitoring insider purchases is a very useful and underrated measure to help find them. It gives the retail investors a peek into how the management of companies sees the stock price progressing in the near-to-mid term, and needless to say, if anyone should have the inside track on predicting a company’s success, it’s insiders, even if they may be slightly biased. A number of studies have shown that imitating such trades could help investors outperform the broader market. It is common knowledge that insider purchases give strong bullish signals, but what is not so obvious is how to identify these trades quickly and efficiently. That’s where we come in. After scanning a number of such transactions we have gathered the most vital insider purchases filed recently, which involved Albemarle Corporation (NYSE:ALB), Mallinckrodt PLC (NYSE:MNK), and Alexander & Baldwin Inc (NYSE:ALEX).
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P 500 Index by around 60 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
The first insider purchase we’ll review was made by Albemarle Corporation (NYSE:ALB)’s CEO Luther Kissam, who acquired some 4,500 shares of the $4.81 billion manufacturer of specialty chemicals, taking his total stake to about 170,800 shares. Following the acquisition of Rockwood Holdings, Albemarle Corporation (NYSE:ALB) has re-aligned its global business units (GBUs) into Chemetall Surface Treatment, Refining Solutions, and Performance Chemicals. The company managed to beat estimates for both the top and bottom lines in its financial results for the second quarter, with all three GBUs performing either in-line or better than expected. The adjusted EBITDA margins also improved to 30%, from 29% in the same quarter of last year, in light of the company’s synergy program. Albemarle Corporation (NYSE:ALB)’s stock is down by about 28% so far this year and is trading at just 10.4 times forward earnings, which makes the company an attractive investment. Among the hedge funds that we track, Neil Chriss‘ Hutchin Hill Capital and Ross Margolies‘ Stelliam Investment Management are the two largest stockholders of Albemarle Corporation (NYSE:ALB), and raised their respective holdings by 25% and 6% during the June quarter, to 1.35 million shares and 1.28 million shares respectively.