With U.S. equities enjoying a three-week-long rally, last week’s insider selling to insider buying ratio reverted back to its more common levels. Last week’s dollar volume of insider buying was nearly halved from the previous week, whereas the volume of insider selling more than doubled week-over-week. Insider trading behavior can serve as an extremely helpful barometer of insider sentiment about a company’s strength or the overall market’s potential. It is true that the emergence of stock-based compensation at numerous companies has distorted the insider trading data, particularly when it comes to insider selling. Nonetheless, retail investors should continue to examine insider trading behavior when timing their trades. Numerous insiders who were purchasing their companies’ shares when U.S. equities were heading south earlier this year turned out to have made very profitable trades, as their companies’ shares have rebounded sharply in the past few weeks. Long term-oriented retail investors need to pay close attention to insider buying activity, considering that insiders usually buy their companies’ shares because they appear to be extremely undervalued. Although the insider buying activity has been flagging in the past several days, the Insider Monkey team pinpointed several companies that recently registered noteworthy insider purchases.
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).
Let’s kick off our discussion by examining the recent insider buying registered at Huntington Bancshares Incorporated (NASDAQ:HBAN), which had three different insiders purchase shares over the course of the previous week. To begin with, Director Peter J. Kight purchased exactly 100,000 shares last Thursday at prices that ranged from $9.36 per share to $9.62 per share, which lifted his stake to 245,758 shares. Moreover, Chief Executive Officer and President Stephen D. Steinour bought 10,000 units of common stock a day earlier at prices ranging from $9.27 to $9.28 per share, increasing his direct ownership stake to 3.10 million shares. Paul G. Heller, Chief Technology Officer and Senior Executive Vice President, snapped up a mere 514 shares on Friday at a cost of $9.73 per share and currently owns 292,010 shares.
It should be noted that the shares of the multi-state diversified regional bank holding company have advanced by more than 10% since we covered another strong wave of insider selling at the company in early February. The CEO bought 100,000 shares on February 1 at prices in the range of $8.54 to $8.59 per share, while Huntington Bancshares Incorporated (NASDAQ:HBAN)’s shares are currently trading at around $9.50 a share. In January, Huntington announced a cash-and-stock deal to acquire Ohio-based diversified financial services company FirstMerit Corp (NASDAQ:FMER). Under the terms of the deal, each shareholder of FirstMerit will receive 1.72 shares of Huntington and $5.00 in cash for each share of FirstMerit. FirstMerit Corp (NASDAQ:FMER) has approximately 366 banking offices and 400 ATM locations in Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania. According to a recent SEC filing, Huntington’s officials anticipate that the company will have to divest some FirstMerit or Huntington branches in certain banking areas to receive regulatory approvals. Just recently, analysts at Jefferies reiterated their ‘Buy’ rating on Huntington’s stock and have a price target of $12.50 on it, citing decent organic growth prospects and that the approval process of the aforementioned merger is heading in the right direction. The merger is expected to close in the third quarter of this year. David Harding’s Winton Capital Management upped its position in Huntington Bancshares Incorporated (NASDAQ:HBAN) by 56% during the final quarter of 2015, to 4.35 million shares.