It is common knowledge that insiders have a greater understanding of their companies and might use that knowledge to time their stock purchases or sales more accurately than any other trader could. During my bachelor studies, I was an intern at one of the largest tobacco companies in the world, so I can firmly confirm that corporate insiders do have a better understanding of what’s going on with their company’s business (they have up-to-date knowledge about industry trends and regulatory changes, they know what the competition is doing, and how consumers respond to different product developments or introductions). Some insider trading watchers and researchers believe that individual investors should focus on the insider trading activity of smaller firms, as outsiders tend to have more knowledge about the businesses and developments of large, highly-scrutinized companies. Hence, the insider purchases registered at small growth companies might represent stronger signals of future performance. The Insider Monkey team identified three companies with recent insider buying, and the following article will take a thorough look at those purchases.
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 (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.
OMNOVA Solutions Inc. (NYSE:OMN) had three different insiders make big purchases this week. To begin with, Director William R. Seelbach purchased 10,000 shares yesterday at a price of $4.85 per share, lifting his stake to 59,523 shares. Anne P. Noonan, President of Performance Chemicals, snapped up 20,000 shares this week at a weighted average cost of $4.78, but was also granted 24,200 shares under the OMNOVA Solutions Inc. Third Amended and Restated 1999 Equity and Performance Incentive Plan. Last but not least, Chief Financial Officer and Senior Vice President Paul F. DeSantis bought 2,000 shares on Wednesday at $4.41 apiece and also received 25,500 shares under the same incentive plan. After the recent transactions, the CFO currently holds an ownership stake of 83,000 shares.
The innovator of emulsion polymers, specialty chemicals, and engineered surfaces serving the commercial, industrial, and residential end markets has seen its shares decline by 30% over the past year. The company’s weak financial performance stands behind the disappointing loss of market value. OMNOVA Solutions Inc. (NYSE:OMN) generated net sales of $638 million during the first nine months of 2015, compared with $744 million reported a year earlier. The decrease was mainly due to reduced pricing, lower volumes, and currency exchange impact. The company’s net income for the first nine months of 2015 came to $1.1 million or $0.02 per diluted share, down from $6.4 million or $0.14 reported for the same period of the prior year. Earlier this week, the company reported its financial results for the fourth quarter of 2015, which were positively received by the market. However, one should wait until OMNOVA’s revenue stabilizes and starts seeing new pockets of growth. The number of smart money investors from our system with stakes in the company climbed to 14 from 12 during the third quarter. Peter Schliemann’s Rutabaga Capital Management owns 639,109 shares of OMNOVA Solutions Inc. (NYSE:OMN) as of the end of the third quarter.
Let’s move on to the next two pages of this daily insider trading article, where we discuss the insider purchases registered at Charles Schwab Corp (NYSE:SCHW) and CASI Pharmaceuticals Inc. (NASDAQ:CASI).