Numerous stock market participants perceive insider buying activity as being much more informative than insider selling, and rightly so. Board members and executives are usually buying shares in their own companies because they anticipate better times ahead, but they can sell shares for a wide array of reasons that are not necessarily related to their companies’ current development or even future outlook. The well-known former manager of the Magellan Fund at Fidelity Investments, Peter Lynch, once said that “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise”.
Nonetheless, those investors closely monitoring insider trading metrics should keep in mind that insiders may be wrong on some occasions, like any other human being. As a Barron’s article recently quoted Dr. Inan Dogan, the founder of Insider Monkey, as saying that “One insider might overestimate a company’s prospects, but there is higher certainty when many insiders are buying”. Hence, investors need to look for clusters of insider buying, often perceived as very bullish signals. That said, the following article will discuss fresh noteworthy insider buying activity recently registered at three companies.
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).
Struggling Airline Registers Notable Insider Buying
Soon after its freshly-retired CEO unloaded a sizable block of shares in mid-July, Delta Air Lines Inc. (NYSE:DAL) had one member of its executive team make a voluminous purchase earlier this week. Paul A. Jacobsen, Chief Financial Officer and Executive Vice President, acquired 25,000 shares on Monday at prices varying from $38.85 to $38.97 per share. After the recent purchase, Mr. Jacobsen currently holds an ownership stake of 328,631 shares.
The second-largest airline in the United Stats by traffic has lost 23% of its market value since the beginning of 2016. Delta Air Lines Inc. (NYSE:DAL)’s passenger revenue per available seat mile (PRASM) decreased by 4.9% on 3.2% higher capacity in the June quarter, reflecting weakness in the domestic close-in yields environment, the impact of the U.S. dollar strength on international markets, as well as supply-demand imbalances in the Atlantic region and China. The carrier anticipates passenger unit revenue to drop in the range of 4%-to-6% for the September quarter, so things aren’t getting better for the company just yet. Delta Air Lines also intends to reduce its U.S.-U.K. capacity on its winter schedule due to the steep decline in the British pound and the ongoing economic uncertainty over the imminent Brexit.
The Atlanta-based Delta Air Lines fell out of favor with the hedge funds followed by Insider Monkey during the first quarter of 2016, with the number of funds invested in the airline dropping to 97 from 108 quarter-over-quarter. Those asset managers amassed roughly 18% of the company’s outstanding common stock. Charles Paquelet’s Skylands Capital LLC upped its position in Delta Air Lines Inc. (NYSE:DAL) by 15% during the June quarter to 242,550 shares.
Let’s head to the next page of this article, where we will discuss the insider buying registered at two other companies.