The U.S. Securities and Exchange Commission requires all publicly-traded companies’ officers, board members and shareholders to disclose any purchases or sales of shares of their companies. The individuals running a company usually have a competitive edge over non-insiders when it comes to trading that company’s securities, so the investment community should keep a close eye on both insider buying and selling activity.
Information is arguably the greatest commodity in the world and corporate insiders do have a great deal of information about their own companies. These highly-informed individuals hold more up-to-date and useful data related to their company’s operations and performance than journalists, analysts or investors. But it is not just the information advantage that makes insiders successful at trading securities. Their contrarian approach to investing, which follows the pattern of buying low and selling high, has been the key behind insiders’ investing success. Board members and executives are looking at the fundamentals of their business every day and can tell with great precision when their company’s prospects are improving or deteriorating. That said, the following article will discuss several noteworthy insider transactions reported with the SEC during the first trading day of the week.
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).
Insider Buying Registered at Struggling Manufacturer of Railcars
One member of FreightCar America Inc. (NASDAQ:RAIL)‘s executive team purchased some shares this past week. Matthew S. Kohnke, Vice President of Finance, Chief Financial Officer and Treasurer, purchased 7,500 shares on Thursday at a weighted average cost of $14.07 per share, boosting his ownership to 9,500 shares.
The diversified manufacturer of railcars and railcar components has seen the value of its shares plummet by 24% since the beginning of the year. FreightCar America Inc. (NASDAQ:RAIL) posted consolidated revenue of $126.2 million for the second quarter, down from $235.6 million reported a year prior. The decrease was mainly driven by a lower number of railcars delivered, and was partially offset by a higher mix of new versus rebuilt railcars. The railcar deliveries for the second quarter were hit by production inefficiencies and supply chain delays. FreightCar America delivered 2,981 new railcars during the second half of 2016, compared to 2,512 new railcars delivered during the same period of 2015. Royce & Associates, founded by Chuck Royce, upped its stake in FreightCar America Inc. (NASDAQ:RAIL) by 72% during the second quarter, to 422,269 shares.
The second page of this article will reveal two companies with fresh insider buying, while the last page of the article will discuss the insider selling registered at two other companies.