Higher Rates Fail To Scare Away These Companies’ Insiders

The Federal Reserve has raised short-term interest rates for the first times since June 2006, putting an end to its cheap-money ‘era’. It remains to see how the U.S. economy manages to endure a rising interest rate environment and how global investors who poured capital into emerging markets will adjust their investment decisions. Analysts believe that this historic decision will be followed by wild swings in equity markets, but some companies’ insiders do not seem to be bothered by the potential increased volatility. Numerous companies have recently reported noteworthy insider buys, so this article will discuss the insider buying activity registered at three U.S.-listed companies. As a general rule, insider buying is perceived as a bullish signal by most market participants, as it hard to believe that an insider would invest his or her hard-earned capital without expecting price appreciation. So let’s proceed with the discussion of the insider buys registered at those three companies.

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 102% over the ensuing 38 months, 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.

Let’s kick off our discussion by analyzing the insider buying activity reported at Cousins Properties Inc. (NYSE:CUZ). Chairman S. Taylor Glover purchased 50,000 shares on Monday at prices that ranged from $8.96-to-$9.00 per share, lifting his holding to 468,667 shares. The shares of this self-managed real estate investment trust are down 17% for the year and are trading at a trailing price-to-earnings ratio of 22.02, which is slightly below the average of 22.73 for the companies included in the S&P 500 Index. The REIT mainly owns and manages Class A office properties and opportunistic mixed-use properties in Sunbelt markets, as its portfolio includes interests in 16 operating office properties, two operating mixed-used properties, and three projects under development. Cousins Properties Inc. (NYSE:CUZ)’s rental property revenues for the nine months that ended September 30 totaled $207.46 million, which were up from $202.40 million reported for the same period a year ago. This figure increased mainly due to higher occupancy rates, increased recoveries, and acquisitions of Northpark and Fifth Third Center. At the same time, the REIT has an aggregate indebtedness to third parties of $227.2 million as of September 30, a portion of which is subject to variable interest rates. Neil Chriss’ Hutchin Hill Capital upped its stake in Cousins Properties Inc. (NYSE:CUZ) by 12% during the third quarter to 3.36 million shares.

The second page of this insider trading article discusses the insider buys reported at W. R. Grace & Co (NYSE:GRA) and Spirit Airlines Incorporated (NASDAQ:SAVE).

W. R. Grace & Co (NYSE:GRA) had one of its executives make a sizable purchase this week. Keith N. Cole, Vice President, Government Relations and EHS (Environment, Health, and Safety), snapped up 3,000 shares on Monday at $93.5 apiece and currently holds 5,344 shares, which include 2,344 unvested shares. The producer of specialty chemical and materials has seen its shares gain nearly 3% and the company is poised to grow should analysts’ earnings estimates be accurate. The company generated sales of $2.29 billion for the nine months that ended September 30, down by 6% year-on-year. This decrease was mainly attributable to unfavorable currency translation and depressed sales volumes, which were in turn offset by improved pricing. W. R. Grace & Co’s GAAP earnings per share (EPS) for the nine-month period of 2015 totaled $1.69, down from $3.40 reported a year ago. Nonetheless, its adjusted EPS (adjusted for costs related to Chapter 11 and other costs that are not representative of business trends) increased to $3.38 from $3.06 year-on-year. A total of 47 hedge fund from our database were invested in the company at the end of the third quarter, accumulating 41.20% of its outstanding common stock. John Griffin’s Blue Ridge Capital held its position in W. R. Grace & Co (NYSE:GRA) unchanged during the third quarter at 3.19 million shares.

Spirit Airlines Incorporated (NASDAQ:SAVE) had the President and CEO buying shares this week. B. Ben Baldanza reported buying a block of 5,000 shares on Monday for $42.59 each. After the recent purchase, the CEO currently holds a stake of 176,165 shares, which includes 73,576 restricted stock units. The ultra-low-cost airline reported operating revenues of $574.8 million for the third quarter of this year, up $55.1 million or 10.6% year-over-year. This increase was mainly attributable to increased traffic, which was in turn offset by lower passenger yields mainly due to higher competition from domestic network carriers that substantially discounted fare prices. A number of airline companies have announced initiatives aimed at strengthening market share against budget airlines like Spirit Airlines, including the sale of bare-bones tickets. Spirit’s total revenue per available seat mile totaled $0.1027 for the third quarter, which marked a decrease of 17.5% year-on-year. Meanwhile, the shares of this ultra-low-cost carrier are 45% in the red thus far in 2015 and trade at a very appealing P/E ratio of 10.07. Despite the fast-increasing competitive pressures in the industry, some financial hubs have great expectations about the company’s future prospects. For instance, Cowen recently reiterated its ‘Outperform’ rating on the stock and raised its price target to $55 from $50, which yields an upside of at least 32%. Israel Englander’s Millennium Management added a 737,402-share position in Spirit Airlines Incorporated (NASDAQ:SAVE) to its portfolio during the September quarter.

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