Buy Stocks With Insiders: Heavy Insider Activity Detected at These Three Companies

The S&P 500 posted gains for four consecutive weeks, and this event-heavy week is set to decide if the benchmark can achieve its best month since October 2011. The Federal Reserve is expected to reveal its policy decision and post-meeting statements at the end of the two-day policy meeting. On Thursday, market participants will get the chance to take a glance at the first estimate of the third-quarter U.S. GDP growth, which might reveal the extent to which a global economic slowdown impacts the U.S. economy. Lastly, this week is the heaviest in terms of earnings disclosures, which might also assist the S&P 500 Index in registering the best month in four years. In fact, the index has advanced by 7.62% since the beginning of October and has only three trading sessions to beat the 11% return registered in October of 2011. In the meantime, some corporate insiders have been following the crowd recently by acquiring more shares of their companies, which might also hint to more upside in the months ahead. The Insider Monkey team identified three companies with heavy insider buying activity, so this article will attempt to figure out what might have lured insiders to buy stock at the moment.

06photo/Shutterstock.com

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 more than 102% over the ensuing 3 years, 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.

We will get underway by examining the insider buying activity at investment bank Greenhill & Co. Inc. (NYSE:GHL). Chief Executive Officer Scott L. Bok acquired 202,510 shares on Tuesday at a price of $24.89 per unit. Following this sizable purchase, the CEO currently holds an ownership stake of 406,377 shares. The shares of the merger advisory company have been on a decline since early July, further spurred by the recently-disclosed third-quarter earnings report. The stock is nearly 43% in the red year-to-date, so the CEO might have made this bullish move either to stop the sell-off or to gain on the future stock price appreciation. Greenhill & Co. Inc. (NYSE:GHL)’s total revenues declined by $41.3 million to $50.7 million year-over-year, mainly owing to the delayed closing of several transactions. The company’s diluted earnings per share came to $0.02, compared with $0.66 per share reported a year ago. Ken Fisher’s Fisher Asset Management reported owning nearly 321,000 shares of Greenhill & Co. Inc. (NYSE:GHL) in the current round of 13F filings.

The next page of the article discusses the insider buying activity at two seemingly struggling companies.

Let’s now discuss the insider buys at Unifi Inc. (NYSE:UFI), a producer of multi-filament polyester and nylon textured yarns and other related materials. Director Kenneth G. Langone purchased a 10,000-share block on Monday at a weighted average price of $27.85, boosting his stake to 1.05 million shares. Additionally, his wife acquired 900 shares at a price of $27.84 per share and currently holds 26,900 shares. The Director also owns an indirect ownership stake of 130,000 shares through Invemed Associates LLC, where he serves as the principal equity holder, President and CEO. Just recently, Unifi Inc. (NYSE:UFI) disclosed preliminary operating results for the first fiscal quarter that ended September 27. The company posted net income of $8.0 million, or $0.45 per share, relative to $7.1 million, or $0.39 per share reported a year ago. Unifi managed to deliver strong operating results despite facing foreign exchange headwinds. Meanwhile, the shares of manufacturing company are down 5% year-to-date, so the Director might be betting on a turnaround in the upcoming months. Robert Bishop’s Impala Asset Management was the top shareholder of Unifi Inc. (NYSE:UFI) within our database at the end of the June quarter, holding approximately 913,000 shares.

Finally, we will look into the insider trading activity at real estate investment trust Pebblebrook Hotel Trust (NYSE:PEB). Jon E. Bortz, who has acted as Chairman of the company’s Board of Directors, President and Chief Executive since its formation in October 2009, bought 5,000 shares on Tuesday at exactly $33 apiece and currently owns 657,384 shares. His son also acquired 100 shares on the same day at a price of $32.99, enlarging his stake to 300 shares. Meanwhile, the executive’s wife holds a 200,000-share stake. Just a few days ago, the operator of high-end hotels disclosed its third-quarter financial results, which came in slightly lower than the company had previously anticipated. Pebblebrook Hotel Trust (NYSE:PEB)’s same-property revenue per available room increased 4.0% year-over-year to $230.36 million. At the same time, its hotels generated $88.6 million of same-property EBITDA, which was up 8.6% year-over-year. However, the company anticipates that the weakening global growth, job growth and international inbound travel demand will have an impact on its activities in the fourth quarter. Richard Driehaus’ Driehaus Capital acquired a 80,879-share stake in Pebblebrook Hotel Trust (NYSE:PEB) during the second quarter.

Disclosure: None